Cotton stock to drop by 6 per cent in year 2018 – 2019

Globally, more than a hundred countries cultivate cotton, used in textile and garments but its trade is highly susceptible to global economic situations.   About thirty per cent of the fibre used worldwide is cotton and acute drop in cotton production was reported in 2015 due to poor weather conditions, policy uncertainty, and low market demand. The financial crisis in 2008 reduced the per capital consumption of cotton by over 10 per cent, and this led to drop in cotton price appreciably from US dollar 1,754 per tonne to US dollar 1,118 per tonne.

The U.S. exported $7.6 billion cotton, highest in the world (as reported in 2017). Global cotton stocks are expected to decrease as per USDA, where the stocks are anticipated to reach 83 million bales (in yr. 2018 -2019) that are 6 per cent below the 2017-2018 stocks. 

In the U.S., cotton futures increased by 21 per cent (in 2018) as the production of cotton was affected by drought in the West Texas –one of the leading cotton producing regions. 
Summary - US and China tensions

February - In Feb, US president inflicted tariffs on washing mashing and solar panels imports. Later China directed investigations into imports of sorghum from US.

In response, US enforced tariffs up to 25 per cent on steel and 10 per cent on aluminium (exempt Mexico and Canada).

April - China imposed tariffs up to 25 per cent on 128 US products. US recommended 25 per cent tariffs on 130 industrial products from China; in return, China proposes 25 per cent, additional tariffs, on 106 U.S. products.
June- China proposes to inflict additional tariffs on 659 goods from US worth $50 billion and on June 18, U.S. proposed 10 per cent tariffs on Chinese goods worth $200 billion. 

Also, EU imposes 25 per cent duties on U.S. imports of worth 2.8 billion Euros against U.S. tariffs on steel and aluminium. 

Impact on agricultural goods - Cotton

Global trade tensions effected agricultural goods producers and cut short purchases of U.S. farm goods. China proposed additional tariffs on some products from US, which includes cotton, whereas, stock of cotton in China is expected to reduce (in 2018-2019) to 33.1 million bales.

Some global countries will be profited from the trade war, such as Australia, Brazil and Argentina –where the demand of US exports can be met. 
Even, the UK and Scotland will be benefited by the new tariffs, which are producers of whiskey for the Chinese markets.

Risk factors 

The government in China introduced policies to support cotton farmers to built huge stocks of cotton. China is also taking steps to make direct investment in sectors such as metals, agriculture and energy production, to diversify as an alternative to reduce impact of such trade tensions. 
Cotton price fluctuates on government prices and continues to lose due to contraction in share of cotton in total fiber consumption. 

Future

China is the leading producer of cotton and also the largest consumer. Brazil and Australia are 2nd and 3rd largest exporters, and exports from Australia are expected to increase by more than 10 per cent each year to 1.1 MT by the year 2025. 

India account for 17 percent of the global cotton exports but its share is expected to decrease by 7 per cent by 2025(as per “OECD-FAO Agricultural Outlook”). The report states China’s share as a largest importer of cotton will reduce to 19 per cent by 2025. 
 

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