China’s tariffs on U.S. cotton helped push international prices down from a mid-June season-high of $1.02 per pound to 92 cents per pound in early July, stabilizing at around 88 cents a pound on strong demand in Asia and Southeast Asia, according to a new report from the International Cotton Advisory Committee (ICAC).
Spot prices on U.S. cotton averaged 84.44 cents per pound for the week ended July 26, according to the U.S. Department of Agriculture (USDA). The weekly average was down from 85.14 cents a pound the previous week, but up from 66.58 cents a year ago earlier, USDA reported.
While high prices typically contribute to an increase in cotton cultivation, ICAC said difficult environmental conditions and a lack of available water could cause a reduction in planted area for many of the world’s top producers in 2018-19.
“Sour trade relations between China and the USA show little signs of improving and could even deteriorate further in the near term, potentially causing major shifts in global trade patterns,” ICAC said. “China’s 25 percent premium could prompt the USA, the world’s largest exporter, to seek new markets for its fiber, while other major exporters such as Brazil are expected to fill the void by increasing their shipments to China, the world’s largest importer.”
The ICAC report said global production has increased 16 percent to 26.87 million tons in 2017-18, with growth from all major producers, including India, China, the U.S., Brazil, Pakistan, West Africa, Turkey, Australia and Uzbekistan. But those increases come from expanded plantings and favorable weather conditions, ICAC said, as global yields posted a marginal 1 percent increase.
Global production for the 2018-19 season is projected at 25.9 million tons, a 4 percent decrease year over year, according to the report. Global consumption, however, is also forecast to grow 4 percent to 27.5 million tons.
Cotton area in 2018-19 is forecast to decrease in major producing countries. India’s acreage is seen falling 3 percent to 11.9 million hectares and U.S. area is expected to be down 5 percent to 4.25 million hectares. China’s acreage should remain stable at 3.3 million hectares, according to ICAC.
“With global consumption at an all-time high, pressure on stocks is expected to reduce global reserves by 1.6 million tons to finish the 2018-19 season at 17.7 million tons,” ICAC said.
The report noted that stocks in China are projected to fall for the fifth consecutive year to 7.5 million tons, while stocks elsewhere are expected to remain stable at 10.1 million tons.