The National Cotton Council continues to engage with the Administration regarding U.S.-China trade relations, which have had significant effects on the cotton market since mid-2018.
How has the dispute affected prices, exports?
■ Cotton prices are about 33% lower since the imposition of the 25% retaliatory tariff on U.S. cotton in the U.S.-China trade dispute. In mid-2018, producers had the opportunity to price cotton off a futures market trading in the range of 85-95 cents. Now those same producers are facing futures prices in the low to mid-60s.
Meanwhile, based on the latest available shipment data for the 2019 crop year (August–December), the U.S. market share in China is 16%, while Brazil’s share is 36%.
The U.S. textile industry also continues to feel the tariff’s effects. Before the dispute, U.S. yarn manufacturers were shipping the equivalent of 150,000 bales of cotton yarn. Under the tariff imposition, there essentially is no U.S. yarn being shipped to China.
Has world mill use been upset?
■ Estimates of global cotton demand are off by a total of 15.4 million bales for the 2018 and 2019 marketing years, representing a drop of about 6% from pre-dispute expectations. World mill use for the 2019-20 crop year is estimated at 118.2 million bales, almost 8 million bales less than the U.S. Department of Agriculture’s previous projection announced in May 2019.
It could be further reduced as supply chains are further disrupted by the coronavirus outbreak. In fact, estimates were revised down this past March (see chart) due to the ongoing trade dispute, a slowdown in the Chinese/world economies and disruptions to manufacturing/trade owing to the coronavirus outbreak. As a result, U.S. cotton merchants could face additional cancellations and defaults for the 2019 marketing year.
Any help from MFP, Phase I?
■ According to a NCC analysis, for the most recent five years, whether measured in the futures market or the spot price market, the average cotton acre has seen a decline in market value of $255, based on a price decline of 30 cents per pound. Under the current Market Facilitation Program, cotton producers received between $15-$150 per acre.
The average payment across all 2019 cotton acres is estimated at $99, representing just 39% of the lost market value. While the MFP is extremely beneficial for a farm’s financial condition, the current assistance does not fully offset the economic losses.
Regarding Phase 1, the market disruptions created by the coronavirus outbreak could delay China’s ability to increase U.S. cotton purchases in the near-term as part of that trade agreement. In February and March, USDA reduced China’s 2019-20 consumption estimate by a total of 2 million bales due to coronavirus.
Going forward, the NCC will continue to closely monitor China’s purchases of U.S. cotton and actively communicate with USDA/U.S. Trade Representative officials because enforcement of the purchase commitments will be critical. If those purchases do not materialize and prices remain similar to current levels, the NCC will not hesitate to advocate for another round of MFP.
Gary Adams is president/CEO of the National Cotton Council of America. He and other NCC leaders contribute columns on this Cotton Farming page.