Industry Observation: Cotton Planting Area In 2023 From The Perspective Of Planting Area Income

Since the implementation of the target price subsidy policy for cotton in Xinjiang in 2014, the cotton planting area in Xinjiang has increased slightly, while the cotton planting area in the mainland has continued to shrink, which has dragged down the overall cotton planting area across the country. Although there are policies to support the cotton planting income in Xinjiang, the income has declined as a whole, and corn and other grain crops have higher income, and there are more cotton fields in the mainland. According to the monitoring, the national cotton planting area will be 42.172 million mu in 2022, a decrease of 30.43% over 2014, of which the mainland will decline by more than 50%, and Xinjiang will increase by 4.29%. As the subsidy has not yet been specified, the cotton planting income before the subsidy in 2022 will be -538.91 yuan/mu, down 970.91 yuan/mu compared with 2014; The comparative income of corn and cotton has expanded to more than 1000 yuan/mu, hitting a new high in recent nine years.

The planting intention of cotton farmers in this year mainly depends on the income level of the previous year. Since 2014, the average cotton planting income has been about 700 yuan/mu. The cotton planting income in 2015-2017, 2020 and 2021 is higher than the average income, and is about 150 yuan/mu higher than the corn planting income. The cotton planting area in 2016-2018 is above the average of 45 million mu in the past nine years, and the planting area will stop falling by 4.15% in 2022. On the contrary, the cotton planting income in 2014, 2018 and 2019 was lower than the average level, and about 220 yuan/mu lower than the corn planting income, leading to a decrease of 3% - 5% in the cotton planting area in the next year. Since the subsidy method was changed to target price subsidy, the cotton planting area decreased by 21.06% in 2015.

In order to further study the influence of cotton planting income on planting area, the index of "planting area income elasticity coefficient" was introduced to explore the response of planting area to cotton planting income changes. It can be seen from Figure 2 that when the planting area changes inversely with the income, the maximum elastic coefficient is 1.94, that is, the cotton planting income changes by 1%, and the maximum fluctuation of the planting area is 1.94% (the positive and negative signs are opposite); When they change in the same direction, the maximum elastic coefficient is 2.66, that is, the cotton planting income changes by 1%, and the maximum fluctuation range of planting area is 2.66% (the positive and negative signs are the same). After removing the outliers, it can be found that the average elasticity coefficient between planting area and income is 0.05. According to the estimation of 200 yuan/mu of cotton planting income after subsidies, it is estimated that the national cotton planting area will decline by 4.26% to 40.377 million mu in 2023, which is close to the preliminary survey data of 39.787 million mu. (Planting area income elasticity coefficient=planting area change percentage/income change percentage, which can quantify the reaction of planting area to cotton planting income change)

Influenced by the significant decline of cotton planting income in 2022, the obvious comparative advantage of corn and other factors, it is expected that the enthusiasm of national cotton farmers to plant cotton will decline in 2023. It is preliminarily estimated that the national cotton planting area will decline slightly to 39.787 million mu in 2023, with a year-on-year decrease of 5.66%. The specific data will continue to be investigated and revised according to the implementation of subsidies and the latest target price subsidy policy.

In terms of regions, the decrease of cotton planting area in the mainland may be leading, while that in Xinjiang may be limited. Affected by factors such as low planting efficiency and adjustment of planting structure, the cotton planting area in the mainland may continue to decline. It is estimated that the cotton planting area in the mainland will decline by 21.71% to 6.287 million mu in 2023. Due to the restrictions of water resources and the policy of ensuring food planting, Xinjiang's cotton planting area is expected to decrease by 3.04% to 33.5 million mu in 2023. 2023 is the first year of the new target price policy. The target price positioning will affect the enthusiasm of cotton farmers in Xinjiang, and will pay close attention to the target price subsidy policy before spring sowing.

To sum up, the cotton supply pressure is expected to ease in 2023. With the start of the internal cycle, the supply and demand relationship is expected to improve. With the weakening of the macro environmental pressure and policy support, the cotton spot price is expected to rebound from the bottom. However, high carry over inventory and insufficient external demand may limit the rebound space of cotton prices.