China Buzz

Lint markets were subdued over most of the country today with moderate price gains. Particular strength was noted in Hebei, Hubei and Shanxi provinces. Mills are breathing a sigh of relief as the standoff between ACSA and AQSIQ has come to an end with most US exporters of cotton now preparing (or already done so) to register per the government’s requirement. Mills remain committed to buying for immediate use rather than any building of stocks. Preserving cash flow and the 1 percent quota are top concerns. Still, most mills recognize the underlying price strength and are feeling prices may move slightly higher. Sourcing of high grades remains a problem in China. Rumors of additional reserve purchases coming from Xinjiang helped underscore the mills’ overall feeling of higher price moves. Derivative markets were slightly higher though for the most part not a factor at all today. ZCE futures recorded their lowest volume in two years. Traders expect ZCE futures to remain stagnant for the foreseeable future. Reserve procurement for March 12th totaled 28,600 tons, including 10,000 tons of Xinjiang cotton and 18,600 tons of inland cotton. As of March 12th cumulative 2008/09 reserve procurement reached 2,500,550 tons, 1,343,400 tons from Xinjiang and 1,136,750 tons from inland.

Government officials are worried agricultural incomes in the current environment could dip. The concern over the stability of the countryside is always a major concern. One official summed up the government’s sentiment by stating, ""The disparity between the urban and rural population is widening. The high number of unemployed will brew into a social problem and affect social stability." This past year, rural incomes enjoyed a gain of 292 US dollars or 2,000 yuan, the largest gain in more than five years. Average income of the nation’s farmers is about 5,000 yuan/year. Expect the government to be very committed to maintain rural incomes and prevent them from sliding, despite the current economic environment.

The yuan is slightly higher against the dollar this morning while currently at 6.8388.