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Cotton Rebounds After US-China Trade War Escalates

May 28, 2019 at 18:34 by Andrew Moran

Cotton futures are rebounding on Tuesday after falling more than a penny to kick off the trading week. In another escalation in the trade spat between the world’s two largest economies, China is reportedly threatening to stop purchasing US agricultural products, a move that would include cotton. This would offer uncertainty over global cotton inventories as some markets are experiencing output declines. Beijing is also thinking about suspending rare-earth exports.

July cotton futures dipped 0.98 cents, or 1.43%, to 69.37 cents per pound at 18:09 GMT on Tuesday on the US ICE Futures exchange. Despite a strong weekly gain of roughly 2%, cotton prices have slipped into a bear market over the last 12 months, slumping 22%. Year-to-date, cotton is down nearly 4%.

Futures of the fiber have tumbled to their lowest levels since September 2016. Cotton has turned into one of the worst performing commodities in the global market as it has fallen victim to the US-China trade war. Cotton prices may deepen their losses should Washington and Beijing extend the trade dispute into the summer and perhaps into the holiday season.

Weeks after the US and China exchanged tariff hikes on each other’s goods, Beijing has reportedly threatened to stop purchasing American agriculture. The media is reporting that China is “seriously considering” ending its imports of US agriculture or restricting rare-earth exports to the US.

Both moves would damage the American agricultural sector, as well as a whole host of industries, including consumer electronics, military equipment, and chemicals.

This comes as India has said that it expects its production levels to slip 5% in the 2019 season because of low water volumes and lower yields amid pest attacks. So, even if US farmers transition away from soybean and into other commodities, they might still be unable to capture the Chinese market, which is the world’s biggest cotton consumer.

Moreover, Brazil continues to grab greater global market share of cotton.

That said, US cotton inventories are gradually increasing, topping four million bales this year. It is projected that cotton stockpiles will surpass the six-million mark in 2020, should the trade spat persist. In the 2018–2019 marketing year, roughly 1.96 million bales of cotton have been sold to China, but 829,000 bales still need to be shipped.

In other commodity markets, July corn futures soared $0.16, or 3.96%, to $4.2025 per pound. July wheat futures spiked $0.155, or 3.17%, to $5.05 a bushel. July soybean futures advanced $0.26, or 3.13%, to $8.5625 per bushel.

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