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Rising Cotton Production in Mexico Curbs Demand for US Exports

Mexico’s cotton industry is booming, reaching levels not seen since the late 1970s.

But that rise is sending U.S. cotton exports on a downtrend that could worsen depending on how certain trade relations shake out.

According to a recent Global Agricultural Information Network report released by the United States Department of Agriculture (USDA), increased production in Mexico from 2017 through 2019 has lowered demand for U.S. cotton—which accounts for the nearly all of Mexico’s imports.

At the same time, the cotton boom has driven Mexico’s exports to their highest point in more than 30 years, with much of that product going to China in 2018.

Because of stipulations outlined in trade agreements requiring the use of U.S. cotton, Mexico’s imports have not yet fallen as much as production has climbed, though according to the USDA report, that fact could change if similar conditions persist.

“If Mexico’s production were to remain high for an extended period, it could make further inroads into domestic mill use as the downstream demand becomes more accustomed to the greater supply of local cotton,” according to the report. “A successful outcome resolving U.S.-China trade tensions could also reduce Mexico’s export opportunities, increasing pressure to use cotton domestically. Neither of these outcomes bode well for U.S. cotton exports to Mexico.”

The overall forecast for cotton consumption in the 2018-19 season has dipped slightly—due largely to Turkey’s recent economic struggles—while global production remains largely unchanged. U.S. consumption is lowered, and stocks are raised.

Looking at major cotton importers, Turkey’s cotton imports are projected down 200,000 bales as the country struggles to regain financial footing. Weaker exports could force India to reduce its imports by the same amount. Vietnam’s declining mill use could represent a 100,000-bale decrease in cotton, while estimates for U.S. imports remain unchanged. By contrast, China’s cotton intake is projected up 500,000 bales owed to government purchases.

When it comes to cotton exports, Australia, whose exports are forecast to increase by 200,000 bales, has been buoyed by China’s growing demand, according to the USDA. Turkey’s exports could also grow by 100,000 bales due to declining domestic mill use, while India’s exports are expected down 300,000 bales, and Burkina Faso’s down 150,000 bales due to smaller crop sizes.

The U.S. season average farm price so far remains unchanged at 70 cents/lb.