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Cotton Prices Hit 10-Year Lows, and Trade War Could Send Them Lower Still

The U.S.-China trade war has caused sourcing shifts, concern over prices and general angst in the apparel and textile supply chain, but one sector seems to be really taking it on the chin.

The long-term impact on the cotton market is sending ripples from the farm to the commodities market, with prices taking a sizable hit as the U.S. loses out on its major export market, China. Along the way, the supply and demand dynamic is being torn apart.

U.S. spot cotton prices fell to 52.73 cents a pound on Monday from 53.76 cents on Friday, according to the U.S. Department of Agriculture (USDA). This is the lowest price for the commodity since 2009. Prices bounced back a bit on Tuesday, closing at 53.09 cents per pound.

Prices averaged 57.75 cents per pound for the week ending Aug. 1. That was up from 57.71 from the prior week, but down from 85.78 cents reported the corresponding period a year ago, USDA reported.

U.S. cotton futures prices for October contracts closed at 57.91 cents a pound on Monday from 58.94 cents on Friday and 64.24 cents on July 25. On Tuesday, they inched up to 58.25 cents.

“When the cotton market sees a major export market like China disappear, particularly in a short period of time, the reaction is to contract and prices plunge,” Robert Antoshak, managing director of Olah Inc., said. “That’s because there isn’t any overnight solution to demand, and it is a supply and demand situation.”

Since China implemented a 25 percent retaliatory tariff on imports of U.S. cotton fiber last July, its imports from the U.S. have dropped 44 percent, or 868,000 bales, according to the USDA.

On top of that, Antoshak pointed out that when there’s a very large and healthy U.S. crop, the feeling is that “it makes it worse.” A lot farmers and traders, he said, are left asking “now what?”

“Chinese buyers always came in and bought the best cotton because they wanted quality, especially for the ring spinning they were doing,” he said.

Before the trade war started and tariffs were imposed, cotton was at around a $1 a pound.

“I have some people telling me it’s going to crash through 50 cents,” Antoshak said. “If that kind of stuff happens, I think for a lot of famers and the cotton infrastructure, I don’t know what they will do.”