The US-China trade conflict is taking a toll on cotton prices

June 12, 2019 Gubba Seed In E News

Cotton is bearing the brunt of the escalating tariff war between the US and China. Prices have collapsed to multi-year lows in the US, the world’s largest exporter of the natural fibre, raising serious concern among market participants.
This is despite tightening market fundamentals in 2018-19, with production trailing consumption and stocks on the decline.
China — the world’s largest consumer and importer — has almost stopped buying American-origin cotton, and has imposed a retaliatory tariff of 25 per cent on US-origin material.
Also, the Asian major has slightly tweaked its inventory policy, by moving to stock rotation rather than de-stocking.
In the absence of large-scale Chinese purchases, cotton prices have collapsed to a three-year low of 65.5 cents a pound from 78.5 cents by mid-May (A-Index).
Pessimism now pervades the world cotton market. Short-term oriented market participants are more pessimistic about cotton prices and are exiting their positions in droves.
This has a consequential impact on the price of the fibre in other countries, including India.
Yield estimates
From the initial exaggerated estimates, the Indian cotton crop size has been gradually scaled down as the reality on acreage, crop loss and yield set in.
In fact, the Agriculture Ministry’s third advance estimate released is scary — 276 lakh bales (170 kg), sharply down from the 301 lakh bales in the second estimate, released in February this year.
It is also far below last year’s (2017-18) output of 328 lakh bales (as per the official estimate). Of course, there is scepticism about the accuracy of the government estimate for this year.
But if true, it paints a picture of concern, especially for domestic consumers. It also demonstrates how vulnerable the crop can be to weather vagaries and pest attacks.
The production target for the 2019-20 season is tentatively fixed at 357.5 lakh bales. It is unclear if the target will be achieved, especially with the forecast of slightly below normal monsoon and the threat of El Nino-induced dry conditions.
We need effective strategies to manage white fly and pink boll worm attacks. Integrated pest management is critical.
Affect on growers
According to the Washington-based International Cotton Advisory Committee, production is projected to outpace consumption in 2019-20, and will add to already high stocks. This expectation too is seen exerting downward pressure on prices.
A very substantial part of US’ cotton production is intended for the overseas markets, especially China. Because the trade dispute has all but closed a large market, American growers are upset.
In order to support growers hit by the trade dispute, the US administration has announced a relief or support package.
Some observers believe the support measure suggests that the US is preparing for a prolonged trade war with China.
It makes sense because the US is most likely to harvest a bigger cotton crop — possibly 20 per cent higher — in 2019 compared to the previous year, and will end up with multi-year high stocks.
Missed opportunity
Because the Indian market is integrated with the global market through the trade route, global cues impact Indian prices. Growers here have to stay motivated to produce more, especially to meet the domestic demand first. We need to generate genuine export surplus.
Late last year, the US-China trade dispute opened a window of opportunity for India to promote cotton export.
It is unfortunate that we missed that fortuitous chance to maximise export in the last six months, by not engaging with China closely. In the process, we denied growers here a good price.

Source : thehindubusinessline

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