Nov. 10, 2004, (Bloomberg) -- CropChoice.com:
China, the world's top cotton grower and consumer,
will double lending to buyers to encourage purchases
of the fiber as the harvest is expected to rise 32 percent
to a record this year, reducing prices and farm incomes.
The Agricultural Development Bank, a state-owned policy
lender, will loan 20 billion yuan ($2.4 billion) this
year to millers and state-owned buyers, said Martin
Liu, a cotton analyst at Beijing Orient Agribusiness
Consultant Ltd., an agriculture ministry affiliate.
``Lending is rising because of the bigger harvest this
year and concern prices will decline, which would hurt
farmers' incomes,'' Liu said in a telephone interview
in Beijing. Cotton is the worst-performing global commodity
this year, falling 41 percent, according to Bloomberg
Chinese Premier Wen Jiabao made a recovery in rural
incomes one of his priorities to ensure social stability.
About 800 million of China's 1.3 billion people rely
on agriculture for their livelihoods and the government
wants to ensure farmers don't miss out on the country's
economic growth of more than 9 percent over the past
Chinese farmers may gather 6.42 million metric tons
of cotton this year after improved weather and increased
plantings boosted the crop, the National Bureau of Statistics
said last month. The harvest would be the biggest since
the bureau started publishing the figures in 1978.
Cotton traded on the New York Board of Trade for December
delivery last traded at 44.04 U.S. cents a pound yesterday
compared with 75.07 cents on Dec. 31 last year.
The fiber for January delivery dropped 145 yuan a ton
to 12,235 yuan a ton on the Zhengzhou Commodity Exchange,
according to the exchange's Web site as of 2:21 p.m.
Beijing time. The contract has fallen 20 percent since
the exchange began trading cotton futures on June 1.
``The bigger loans would ensure farmers are able to
sell their crop in exchange for immediate cash income
and allow them to continue to plant cotton next year,''
said Cao Heping, vice- dean of Peking University's School
of Economics. ``This would prevent price volatility
and stabilize the cycle.''
The cotton crop in China dropped for a second year
to 4.86 million tons in 2003, driving up prices of the
fiber. The shortage, along with expectations of increased
demand because of textile quotas removal, contributed
to a 47 percent surge in cotton prices on the New York
Board of Trade last year, Cao said.
The Chinese government responded by setting up the
China National Cotton Reserves Corp. in March 2003 to
buy and stockpile cotton and help stabilize prices.
China's textile exports may rise by at least 24 percent
to $100 billion next year from 2003, the agriculture
ministry said last month, after quotas on textile trade
expire on Jan. 1 under World Trade Organization rules.
Last month, six industry organizations in the U.S.
and the textile workers' union UNITE said they'd petition
the U.S. Commerce Department to prevent surges in imports
of 15 product categories including woolen trousers,
polyester shirts, cotton sheets and underwear.
``Cotton prices last year were too high,'' Cao said.
``The expectations of an increase in exports are reasonable
though prices were over-speculative. Everybody didn't
expect other countries to resort to alternative trade
China National Cotton Reserve said it planned to buy
300,000 tons starting Nov. 9 at a price of as much as
11,500 yuan a ton, Liu said. No year-earlier comparative
figures were provided.
China on May 14 restricted credit to textile industry
as part of efforts to slow growth and stem inflation.
Lending curbs helped rein in economic growth to 9.1
percent in the third quarter against 9.6 percent in
the previous three months.
Rising raw material and grain prices contributed to
the seven-year high inflation rate of 5.3 percent in
July and August in China. Inflation slowed to 5.2 percent