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Trade tensions and higher stocks add uncertainty to the cotton market

Trade disputes and the cotton A index from june 2018 to june 2019 (c) 2019 ICAC
The cotton market faces continued uncertainty due to the escalating US-China trade war, with prices under additional pressure due to a projected increase in global stocks.
  • The US-China trade war continues to escalate, with increasing retaliatory tariffs on both sides.
  • There is an opportunity for de-escalation at the G20 Summit scheduled for late June, but both countries might be preparing for a protracted dispute.
  • The tariffs have had an impact on the A Index, which hit a season-low of 76 cents per pound in mid-May.
  • Production is projected to outpace consumption in 2019/20, exerting further downward pressure on prices.

There is some hope that American and Chinese representatives might be able to de-escalate the conflict later this month when they’re together at the G20 Summit in Osaka, Japan. However, the US government recently announced it will provide $16 billion in additional support to its farmers, potentially indicating plans for a prolonged standoff.

Prices have suffered from the escalating tariffs, dropping to a season-low of 76 cents per pound on May 14th. Although global consumption is expected to rise by 1%, production is expected to jump 7%, with the resulting increase in global stocks exerting further downward pressure on prices.

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