Excess supply and prolonging trade war with China is affecting the cotton market


Seshadri Ramkumar, Texas Tech University, USA

Productive, albeit stressful conversations, occurred today at the Lubbock-based Plains Cotton Grower (PCG), Inc., about the current trade situation with China, which is impacting the production agriculture in the United States. More importantly, discussions on how the cotton market with excess supply is being affected with China not being a player due to the prolonged trade dispute between the United States and China occupied the center stage. With the cost of inputs rising, increase in production coupled with slow demand, cotton farmers are starting to think about alternate strategies. Producers vocally expressed frustration with the dispute lingering so long without an end in sight.

“Tariffs are good for no one,” stated Darren Hudson, professor of agricultural economics at Texas Tech University. Supply is relatively high compared to demand, added Hudson. Farmers who gathered agreed that the trade issue with China primarily centered around intellectual property rights has been going on for over 2 decades, and therefore finding a resolution is complicated. A solution to the dispute is in the interest of agribusiness, particularly cotton, as China is a major importer of U.S. cotton.

Availability of financial resources in these tough times is critical. Market planning and getting   control over costs of inputs and operational costs are some of the strategies that need greater attention. “This emphasizes the need for savvy business calculations and cost-effective practices stressed,“ Steve Verett, executive vice president of PCG and a well-respected leader in the cotton industry. With the expectation that there will be increased cotton acreage in the United States in 2019, the supply-demand situation is going to play a pivotal role in the cotton sector this year.

Currently, China and Turkey are not active buyers, stated one cotton merchant. Although there is demand for good grade at 70 cents, low grade cotton prices linger around 65 cents. The cotton price and demand situations are being seriously watched as producers have started preparing the land for this year’s cotton planting in West Texas.