Cotton prices are partly based on data which are not reliable, a new report by the U.S. Department of Agriculture (USDA) indicates. China's cotton use could be much larger this season than expected until now, therefore resulting in significantly higher prices if production and stocks are not sufficient. A new methodology used by the report is based on cotton-content of China's textile exports and domestic textile consumption. The result may be discussed but demonstrates that current estimates are far from reliable.

The level in China's cotton use could be much larger in the current season (August 2007-July 2008) than until now estimated, according to a just-reased study by the U.S. Department of Agriculture (USDA).

Author of study Stephen MacDonald made a courageous attempt to find a new way for assessing Chinese cotton consumption.

If correct, the result is extremely embarrassing for predictions which were until now released on this decisive chapter of textile trade.

Decisive Data for Textile Trade
The level in cotton prices is linked to China's cotton imports. After surging in 2005-2006 and therefore boosting prices, Chinese cotton imports were much lower than expected in the last season, therefore depressing New York's market and also physical prices.

Cotton import level is depending on production, consumption and stocks.

The level in stocks is highly confidential in China, since partly including state's official reserves.

Assessing consumption is therefore a possible way to determine China's demand for foreign cotton.

Until now, China's cotton use was estimated from the level in yarn production, as released by China's National Bureau of Statistics (NBS).

Chinese data are far from reliable, however discovered cotton analysts in the past years.

Based on exports and household consumption
Another solution is now proposed by Stephen MacDonald, suggesting to evaluate China's cotton use by adding fiber consumption by households in China and cotton content of textile and apparel exports.

Although based on a long series of assumptions, the result is impressive, at least suggesting that usual predictions are not fully reliable.

Total mill use in China in 2007-2008 could finally reach 19.3 to 29.5 million metric tons, or much higher than 12.4 million tons announced by the USDA in its latest reports.

Given the gap between forecasting quantities, we may assume that cotton fundamentals are increasingly difficult to assess and that prices may be much more volatile in the future, as a consequence.