China'S Cotton Price Distorts And Recedes, Accounting For An Increase In Global Cotton Consumption.

The United States Department of agriculture believes that in the long run,

We will continue to advance in the direction of marketization, balance the interests of cotton growers and textile mills, digest the huge domestic cotton stocks and fulfill relevant commitments to join the WTO.

The relevant economic policies in the communiqu of the three plenary session of the CPC Central Committee in November 2013 pointed out the direction for China's future cotton policy, and emphasized that marketization played a decisive role in the allocation of resources.

In January 2014, China's State Council officially announced that cotton direct subsidy should be implemented in Xinjiang, so as to achieve the separation of cotton prices from government support and return cotton prices to the market.

The Cotton Subsidy Policy in 2014 provided guidelines for China's future cotton policy. In order to reduce market distortions, the government adopted the target price, which is lower than the reserve price in 2012 and 2013, and the support outside Xinjiang is smaller.

This variable, target price based subsidy is only limited to Xinjiang. Even in the course of last year's drop in the price of reserves, there was no re opening of the lowest price.

The support policy for Xinjiang beyond 2014 is only a fixed subsidy of 2000 yuan / ton.

Another policy decision for future directionality is to set a sliding tariff rate in the new deal of 2014.

The "target tax rate" for sliding tariff quotas in 2014 is similar to the sliding tariff rate before 2011, which shows the government's support for price.

The regulation states that if the international cotton price and RMB exchange rate are unchanged from a year ago, the target tariff can become a tariff of sliding tariff import.

On the basis of value-added tax and other charges, the sliding tariff of 10% in 2014 is actually equivalent to 27% price protection for domestic cotton prices.

In the 8 years before the implementation of quasi tax, the historical average tariff rate of VAT is 25%, which shows that the two are very close.

From 2005 to 2010, the price of cotton in China was higher than the international price, which was almost the same as that of the value-added tax.

From these policy signals, the Chinese government's support for cotton prices will weaken in the short term, and in the long run, it may return to the level of the historical long-term average.

China's internal and external cotton price differences can not be completely eliminated, because price support is a long-term component of China's cotton policy, and maintaining the lowest price will also limit budgetary expenditure of the newly born cotton direct subsidy.

Therefore, the most likely situation for China's future price support is to return to the average level of 2005-2010 years. That is to say, the price of China's purchase price is higher than that of foreign farms, and the price will fall from 50% to 2011-2013 in average, and the price will be converted to lint price, which will drop from 50-60% to 25-30%.

This is consistent with the USDA's long-term benchmark forecast for 2014.

According to USDA

Due to the gradual decline of cotton price distortions caused by China's policy, it is estimated that China's share of global cotton consumption will increase from 37% in 2012-2014 to 37% in 2009, but still lower than the 42% highest in history.

The market is the expected game, and finance is the contest of confidence.

The Agricultural Bank has a large margin.

In the near future, it will undoubtedly ease the financial pressure of cotton enterprises indirectly, which helps to alleviate the market risks that may be triggered by the cotton industry in the long run, and cheer for the sluggish market confidence.