Council projects cotton plantings up at expense of soybeans, but China tariffs ‘wildcard’
February 11, 2019
The National Cotton Council projected 2019 U.S. cotton acreage to be at 14.5 million acres, or 2.9 percent more than 2018.
"However, it is important to note that although the survey results suggest a slight increase in acreage, the increase is largely the result of weaker competition from soybeans," Jody Campiche, the NCC vice president for economics and policy analysis, said as the economic outlook was released at the organization's annual meeting recently in New Orleans.
Prospects for exports depend on whether China removes the 25 percent tariff it has placed on U.S. cotton in retaliation for the tariff that the Trump administration has imposed on Chinese steel and aluminum, Campiche said.
"This past year can be characterized as a year with significant uncertainty and volatility in the global economy and the world cotton market," she said.
"For this outlook, the ultimate fate of the tariffs is a significant wildcard impacting the global market. Based on the positive statements resulting from the recent negotiations, the NCC assumes that the additional tariffs being imposed by the two countries will be removed in advance of the 2019 marketing year."
"Prior to the implementation of tariffs, the United States was in a prime position to capitalize on the increase in Chinese cotton imports. With the imposition of the 25 percent tariff, China has turned to other suppliers during the 2018 marketing year, allowing Brazil, Australia, and other countries to gain market share. Vietnam is currently the top export market for the 2018 crop year, followed by China and Mexico," Campiche said.
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She continued, "Under a scenario with tariffs remaining in place, the projected expansion in world trade and the opportunity to backfill trade into other markets would allow U.S. exports in the 2019 marketing year to increase from 2018, but not to the extent as expected in the absence of tariffs."
"The longer-term imposition of tariffs also would dramatically increase the likelihood of permanent losses in market share in China.
With a resolution to the U.S.-China trade dispute, the United States is expected to export more cotton to China in the 2019 marketing year and gain back some market share."
U.S. exports are projected to increase to 17.4 million bales in the 2019 marketing year. If realized, it would represent the second highest level of U.S. exports, second only to the 2005 marketing year. When combined with U.S. mill use, total offtake falls short of expected production, and ending stocks are projected at 6.1 million bales.
In absolute terms, stocks would be the highest since the end of the 2008 marketing year. A stocks-to-use ratio of 29.4 percent would be the highest since the 2015 marketing year.
With stocks outside of China projected to increase to a record level in 2019 and world production also projected high there may be "a more bearish tone for cotton prices in the coming year," Campiche said.
"However, the increase in world trade due to higher Chinese imports along with a resolution to the U.S.-China trade dispute could provide some price support." ❖