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China's Cotton Imports Surge to 11-Year High, Driven by Government Reserves and Domestic Shortages

China's cotton imports for the 2023/2024 marketing year are projected to reach a record high, exceeding 14.8 million bales, more than double last year's volume, according to the latest report from the USDA. This surge in imports is attributed to several factors, including purchases for government reserves, lower domestic production, and the relative affordability of imported cotton compared to domestic cotton.

"2023-2024 China imports are forecast at the highest level in more than a decade at 14.8 million bales, more than double last year’s volume," the WASDE report states.

The report highlights the significant role of government reserve purchases in driving China's import boom. These strategic imports are expected to exceed the level of cotton sold from government auctions earlier in the marketing year, with total government reserves at the end of the marketing year likely covering 4-5 months of consumption.

"Sales of foreign cotton from government reserves earlier in the marketing year has been the main factor driving China’s rising imports," the report explains. "Imports for government reserves in 2023/2024 are expected up roughly 3.0 million bales compared with last year and provide for one-third of China’s total imports."

The government's strategic purchases are aimed at replenishing inventories and ensuring a steady supply of cotton. While China has purchased less than 500,000 bales of domestic cotton in the past three years, imported cotton is expected to account for the majority of reserves in state-owned warehouses. US cotton is estimated to be a significant contributor to these reserves.

Despite the record-high imports in the current marketing year, China's cotton imports are projected to decline to 12 million bales in the 2024/2025 marketing year. This decrease is attributed to the combination of a rise in beginning stocks and the potential for government sales of reserves during the upcoming marketing year.

"With China’s beginning stocks rising nearly 4.0 million bales to 41.0 million, 2024/25 imports are forecast to fall nearly 3.0 million bales to 12.0 million," the WASDE report states.

The report further notes that the final level of 2024/2025 imports will be influenced by several factors, including China's final production, government sales of reserves, and the price differential between imported and domestic cotton.

The report also provides an outlook for the global cotton market in the 2024/2025 marketing year. Global production is forecast to rise slightly, driven by increased production in Burma. Global consumption is also projected to increase slightly, with a rise in Vietnam consumption offsetting smaller reductions in other countries.

While China's cotton imports are expected to decline in the coming year, they are still projected to remain above the five-year average.

The WASDE report underscores China's significant role in the global cotton market, with its government reserve program and strategic import decisions influencing global supply and demand dynamics.