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China unleashes cotton stocks on the world this May

China is about to open the floodgates of huge supplies of cotton, sparking a rout in prices. The auction sales come as China’s crop is set to shrink this year to the lowest in more than a decade. That’s reducing global output by more than 16 per cent, the biggest annual slide since at least 1961.

The country plans to auction about two million metric tons from May through August. That’s almost equal to total shipments expected this season from American growers, the world’s top exporters.

Cotton futures fell the most in six weeks. The price slid more than seven per cent in the past year in part because the large Chinese inventories curbed overseas purchases from the Asian nation, the biggest consumer of the fiber.

Adding to the outlook for bigger supplies is favorable growing weather in US cotton areas. Rains in the next few days will boost soil moisture in Texas, the country’s top producer. American farmers are expected to increase plantings in the season that starts in August as low prices for competing crops leave farmers with few options.

Any increase in production, as well as any volume pushed out of Chinese reserves, will be added to globally available supply in the coming crop year. High levels of available supply can be expected to keep downward pressure on prices.

 
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