Mixed Cotton Signals in the United States

Higher expectations on the 2019 crop and unsettled trade disputes between the United States and China are leading to an unsettling situation in the cotton industry.

 

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Planting momentum has increased in the High Plains of Texas, with good soil temperature in most parts. “Moisture is the dream come true,” said one seed company representative during the May 17 Friday morning meeting at Plains Cotton Growers (PCG), Inc.

 

“Twenty to 30% of the region’s cotton acres have already been planted, and the coming week will see greater activity due to the time limit posed by crop insurance,” stated Mark Brown, director of field services of PCG.

 

“We have not had such good moisture in many years,” said Steve Verett, executive vice president of PCG.

 

While the industry is happy with the weather conditions so far, not all is rosy for the U.S. cotton sector. As the industry is dependent on exports, with higher yield comes higher stress to sell cotton. The market is in distress primarily due to the continuing trade issues with China. With the Trump administration imposing additional tariffs on Chinese imports, retaliation by Chinese is evident, which affects the cotton market.

 

In past two weeks, cotton futures have dropped by 10 cents, with the December futures in the mid-to-upper 60s on May 17. A huge crop expectation is adding pressure to the market, with the U.S. expected to produce 22 million bales of cotton (480 lbs. each).

 

“How do we sell the 17 million bales that are targeted for export,” asked one participant in the meeting. Because of the trade situation, some bales may be rolled over from last year’s trading, adding more pressure.

 

The need to continue a market facilitation program is being felt strongly in the cotton sector, with anticipation that USDA will soon make an announcement on the continuation of the program for the 2019 crop.