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 two
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
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
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 in September.