On October 15, China's cotton price index (CC Index 328) climbed by 254 points to reach 24,177. The previous day, the first four contracts of the U.S. Intercontinental Exchange (ICE) cotton market hit daily limits, with the December contract closing at 114.87 cents per pound—an increase of 400 points, setting a new record high. The surge in prices occurred just before the U.S. Department of Agriculture released its long-anticipated monthly supply and demand report, and the market continued to rise after the data was published.
The U.S. Department of Agriculture revised its forecast for 2010/11 cotton production in China, the world’s largest cotton consumer, downward by 1 million bales to 31.5 million. It also raised the import estimate from 12.75 million to 13 million bales and reduced the ending stock forecast from 16.01 million to 14.72 million bags. These adjustments highlighted a growing imbalance between supply and demand in the global cotton market.
Driven by these imbalances, domestic cotton prices in China have risen sharply, putting significant pressure on textile companies, which rely heavily on cotton as their primary raw material—accounting for over 60% of their costs. Li Weizhong, deputy director of the Cotton Research Center at Shandong Academy of Agricultural Sciences, warned that once demand exceeds supply, the country may become increasingly reliant on imports, similar to how it depends on soybean imports today. This could have a massive impact on China’s entire textile and apparel industry.
In recent years, cotton prices have been highly volatile. This year, they hit an all-time high, prompting calls for stronger government intervention in the market. Xu Xiaoqing, deputy minister of the Rural Economic Research Department at the State Council’s Development Research Center, attributed the current price surge primarily to supply-side issues.
The recovery of China’s textile and garment exports following the 2008 financial crisis led to a sharp increase in cotton demand. From January to June 2010, textile and apparel exports reached $88.8 billion, up 22% compared to the same period in 2009. However, the aftermath of the financial crisis had previously caused a slowdown in the export market, leading to lower cotton prices and reduced planting enthusiasm among farmers. In 2009, China’s cotton planting area fell by 12.4 million mu, contributing to a decline in total output to 6.37 million tons, down 1.12 million tons from 2008.
Additionally, heavy rainfall in the Yellow River Basin during August this year negatively impacted cotton growth during the budding stage, resulting in lower yields and reduced quality. Li Yuzhong predicted a 20–30% drop in this year’s total cotton output. According to the National Bureau of Statistics, the cotton supply-demand gap increased significantly, reaching 6.26 million tons in 2010, up 3.57 million tons from the previous year.
Internationally, factors such as Pakistan’s flood-related production cuts, rising import demand from China and Brazil, India’s export restrictions, and the U.S. dollar’s depreciation have further pushed up global cotton prices. To address the supply-demand imbalance, the Chinese government began releasing reserves in early August. However, despite these efforts, cotton prices continued to rise, showing signs of sustained upward momentum.
Analysts like Mao Changqing of CITIC Securities noted that the sharp reduction in this year’s cotton production has led to heightened market expectations for future price increases. Major cotton-producing regions like Shandong and Xinjiang have started purchasing new cotton, with some areas in Shandong offering seed cotton prices exceeding 6 yuan per kilogram.
While the release of new cotton may provide temporary relief, Du Min of the Ministry of Agriculture’s Rural Economic Research Center warned that the limited reserve stocks and strong demand will likely keep prices on an upward trajectory. The textile industry, which relies heavily on cotton, is already feeling the pressure. Many small and medium-sized textile companies are struggling with rising costs, and some have even had to cut production or shut down.
For larger textile firms, maintaining inventory or developing their own cotton plantations helps mitigate the impact of price hikes. However, smaller companies face severe financial challenges. Hebei Yudeyuan Textile Co., Ltd., a small-scale manufacturer, reported that profit margins have been squeezed due to rising cotton prices, labor costs, and currency appreciation.
As one of China’s key traditional industries, the textile sector plays a vital role in the economy, accounting for about 5% of the country’s total export earnings and employing over 20 million people. While the industry has been recovering from the effects of the financial crisis, it now faces new challenges from rising cotton prices and potential shortages.
Du Min emphasized that while current price increases are still within a manageable range, the textile industry must focus on innovation, brand development, and product value addition to maintain competitiveness. He believes that the ongoing price volatility will accelerate industry restructuring, leading to consolidation and the elimination of weaker players.
In response to the situation, the National Development and Reform Commission held a meeting to discuss macroeconomic control measures aimed at stabilizing the cotton market. Relevant departments were tasked with addressing market disorder and cracking down on speculative activities. Meanwhile, seven ministries and commissions convened a national cotton conference, emphasizing the need to adjust reserves and leverage international resources to maintain a balance in cotton production.
Despite these efforts, the supply-demand gap remains a challenge, and cotton prices are expected to continue rising. Experts like Li Duzhong argue that long-term policies should focus on stabilizing planting areas, increasing output through technological investment, and ensuring a self-sufficiency rate of at least 70%.
Comparatively, countries like the U.S., India, and Mexico provide substantial support to their cotton sectors, whereas China’s subsidies remain relatively low. Du Min called for more investment in agricultural policies, including subsidies, insurance, and infrastructure, to strengthen the foundation of the cotton industry and ensure long-term stability.
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