On October 15, China’s cotton price index (CC Index 328) rose by 254 points to 24,177. The previous day, the first four contracts on the U.S. Intercontinental Exchange (ICE) hit daily limits, with the December contract closing at 114.87 cents per pound—an increase of 400 points, marking a new record high. Prices surged ahead of the U.S. Department of Agriculture’s long-awaited monthly supply and demand report, and continued climbing after its release.
The USDA lowered its forecast for China’s 2010/11 cotton production to 31.5 million bales, down by 1 million from earlier estimates. It also raised China’s import forecast to 13 million bales, up from 12.75 million, while reducing the ending stock estimate to 14.72 million bags from 16.01 million. These adjustments highlighted a growing imbalance between supply and demand in the global cotton market.
Driven by this imbalance, domestic cotton prices in China have risen sharply, placing significant pressure on textile companies that rely heavily on cotton as a raw material—accounting for over 60% of their costs. Industry experts warn that if demand continues to outpace supply, China may become increasingly dependent on imports, much like it does with soybeans, which could have a major impact on the entire textile and apparel sector.
Li Weizhong, deputy director of the Cotton Research Center at Shandong Academy of Agricultural Sciences, emphasized that the cotton industry is deeply intertwined with the national economy and people's livelihood. He warned that a severe shortage could lead to widespread economic consequences.
In recent years, cotton prices have been highly volatile. This year, they reached an all-time high, prompting calls for stronger government intervention. Xu Xiaoqing, deputy minister of the State Council’s Rural Economic Research Department, attributed the price surge primarily to supply-side constraints.
The recovery of China’s textile exports in the first half of 2010, following the easing of the financial crisis, led to a surge in demand for cotton. Exports rose by 22% year-on-year to $88.8 billion. However, the 2008 financial crisis had previously caused a slowdown in cotton exports, leading to low prices and reduced planting enthusiasm among farmers. In 2009, China’s cotton planting area dropped by 12.4 million mu, resulting in a 1.12 million-ton decline in total output compared to 2008.
This production drop exacerbated the existing cotton gap, which was already around 4 million tons in normal years. Additionally, heavy rainfall in the Yellow River Basin during August this year negatively affected cotton growth, leading to lower yields and poorer quality. Li Yuzhong predicted a 20–30% reduction in this year’s cotton output.
According to National Bureau of Statistics data, the supply-demand gap for cotton raw materials increased from 2.69 million tons in 2009 to 6.26 million tons in 2010, a rise of 3.57 million tons. 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 ease the supply-demand tension, the Chinese government began releasing cotton reserves in early August. However, despite these efforts, prices continued to climb, rebounding in late August and accelerating again in mid-September.
Mao Changqing, an analyst at CITIC Securities, noted that the sharp drop in cotton production this year has fueled strong market expectations for future price increases. Major producing regions like Shandong and Xinjiang have started acquiring new cotton, with some areas in Shandong offering seed cotton prices exceeding 6 yuan per kilogram.
Du Min, from the Ministry of Agriculture’s Rural Economic Research Center, pointed out that while the release of new cotton may provide some relief, the limited reserve stocks and strong demand mean that prices are likely to continue rising. He added that the textile industry is under increasing pressure, with many small and medium-sized enterprises struggling to cope with rising costs.
For large textile firms, inventory management and vertical integration help mitigate the impact of price hikes. However, smaller companies often face difficult choices, such as cutting production or even shutting down. Hebei Yudeyuan Textile Co., Ltd., a small-scale firm, reported that rising cotton prices have brought it to the brink of collapse.
As a key pillar of China’s economy, the textile industry accounts for 5% of the country’s total export earnings and employs over 20 million people. While the sector is recovering from past challenges like currency appreciation and tax rebate adjustments, it now faces another major hurdle: soaring cotton prices.
Du Min believes that while current price increases are still within the market’s capacity, they will accelerate the restructuring of the textile industry. Smaller firms may be eliminated, and the industry will likely become more concentrated. He urged companies to invest in R&D and brand building to improve competitiveness and secure a stronger position in the global market.
Government officials have taken notice of the situation. On October 14, the National Development and Reform Commission held a meeting to discuss measures for stabilizing the cotton market. Authorities were instructed to address market disruptions and ensure fair competition. Earlier, seven ministries had convened a nationwide cotton conference to outline strategies for maintaining balance and promoting industrial upgrades.
Despite these efforts, the supply-demand imbalance persists, and cotton prices are expected to continue rising. Experts suggest that China must take a long-term approach, including stabilizing planting areas, increasing production through technological investment, and ensuring a self-sufficiency rate of at least 70%.
Comparatively, countries like the U.S., India, and Mexico offer substantial support to their cotton farmers. In contrast, China provides only a modest subsidy of 15 yuan per mu, leaving its cotton industry vulnerable. Du Min called for greater government investment in subsidies, insurance, and infrastructure to strengthen the sector.
Ultimately, the stability of cotton prices is crucial for both farmers and the broader economy. A well-managed policy framework can help ensure long-term security for the textile industry and maintain China’s competitive edge in the global market.
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