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U.S. Needs a Sustainable Market for Cotton as Tariff Concerns Restrict Prices

By Dr. O.A. Cleveland
 
Tariff concerns and traders’ multiple views regarding the tariff continue to dominate cotton price direction, both up and down.
 
Meanwhile, world supply demand fundamentals appear to provide a firm price bracket for price movement. The three-plus cent trading range from 76 cents to 79.50 cents stills keeps prices restrained within that narrow range. The world crop is slowly being downsized, but tariff-related restrictions on demand have a firm chokehold on cotton’s attempt to break higher.
 
U.S. exports sales remain limited, and the delivery of Indian and Chinese cotton to local points is satisfying immediate pipeline needs. Look for the trading range to continue. Yet, also continue to expect the U.S./Chinese tariff discussion to dominate price action at least through the end of November.
 
The U.S. crop continues to be blindsided by unwelcomed rains that have appeared on a weekly basis throughout the Southeast, Mid-South and Southwest. Due to the rains, the U.S. high quality has already been harvested, and both mills and merchants are searching for those few uncommitted bales that always surface.
 
With the 2018 Australian crop already committed, the only high quality available to the market is generally the Brazilian growth. Of course, fill-in needs can still be sourced from Africa. Greek high quality moved to China in the place of U.S. cotton and is now in limited supply. The Chinese have aggressively brought Brazilian as a substitute for the tariff-blocked U.S. growths that would have been sold there.
 
Thus, the tariff has switched the traditional role of U.S. cotton from being the most sought after growth to the growth of last resort. Never mind that the high quality color grades (middling) were limited by Mother Nature’s abundance of moisture on the crop at untimely intervals. The U.S. will eventually move in the export market, but most had already expected the movement to have already begun.
 
Again, the available supply of new crop in both India and China have moved very well to local mills. Yet, that just simply says that the back months of the marketing season will be a busy period for U.S. sales.
 
This week’s export sales report revealed negative net sales of 49,000 RB, as cancellations totaled 111.4 million RB (China 88,000). Thus, current marketing year sales of upland were 62,400 RB. The market “assumes” the tariff dispute will have ended by the 2019-20 marketing year, as sales for the next marketing season were 109,800 RB. Notably, China simply rolled its 88,000 RB purchase for 2018-19 to the 2019-20 season.
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