China cottons to cotton

China’s growing desire for U.S.-produced cotton is driving commodity prices higher, offering opportunity for farmers but harming domestic companies that have to compete for the raw materials.

“It’s hard not to notice. The price is up dramatically over the last couple of months,” said Van May, president and CEO of Lubbock, Texas-based Plains Cotton Cooperative Association. The cooperative is one of the largest handlers of U.S. cotton, and also owns denim mills and warehouses.

“From the growers’ side and the cotton side it’s healthy that prices have escalated. On the textile side, it’s a killer,” Mr. May said.

Arguably, China is buying too much from the United States. The cotton situation shows how the fast-growing nation can affect world markets — first buying a raw material and driving up prices, then selling a low-cost finished good and driving down prices.

Manufacturers of fabrics and clothes are caught in the middle, paying more for basic commodities but unable to pass on costs to retailers.

Cotton prices on futures markets hit long-term lows in October 2001, but as of last week prices were the highest since 1994, said Terry Roggensack, agricultural analyst with the Hightower Report, a Chicago publication that tracks commodity markets.

“There is a lot of concern that China is going to be an aggressive importer of U.S. cotton and continue to support prices,” he said. “It’s driven by fears we’re going to run out of cotton.”

All foreign cotton consumption is expected to break a record for the fifth consecutive season from August 2003 to July 2004, according to U.S. Agriculture Department figures.

China is leading the way. Imports are forecast at a record-breaking 4.3 million bales of cotton, more than 25 percent higher than the previous year.

“The robust demand has supported foreign imports and has provided a home for U.S. cotton as the additional mill demand moves overseas,” the USDA said in an October report.

The United States has pressured China to lower trade barriers and allow more American goods to compete in its market. Last week China agreed to go on a buying spree for some manufactured goods.

In general, agriculture trade with China is a bright spot in a sometimes troubled trade relationship, although barriers remain. U.S. agricultural exports there increased 300 percent to $2 billion from 1992 to 2002, making it the sixth-biggest destination for U.S.-grown goods, according to the American Farm Bureau Federation.

“To U.S. agriculture, China is a great opportunity, while at the same time it’s a substantial threat,” Charles Kruse, president of the Missouri Farm Bureau, said in testimony to the House Ways and Means Committee last week.

While exports are an increasingly important and lucrative source of revenue for farmers, some worry their best customers are going out of business.

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