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Trade, COVID-19, & the Cotton Planting Season

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For nearly all industries, it has been a year full of uncertainty. This certainly has been true for U.S. cotton growers.

The Matter of Trade

One major source of uncertainty has been the trade dispute between the U.S. and China.

The U.S. is the world’s largest cotton exporter and China is the world’s largest cotton importer.1 The increase in Chinese tariffs on U.S. cotton affected the competitiveness of U.S. shipments of fiber to the world’s largest cotton market.

China is the world’s largest apparel exporter and the U.S. is the world’s largest apparel importing country.2 The increase in U.S. tariffs on Chinese-made clothing affected the competitiveness of Chinese apparel shipments to the world’s largest apparel market.

Tariffs at either end of the supply chain constrain choice and inhibit demand. From a broader view, beyond apparel supply chains, the U.S. and China are also the world’s two largest economies.3 As tensions increased, concern about global economic growth increased.

Cotton demand is sensitive to changes in global economic activity, and cotton prices can be affected by changes in demand. During the last round of tariff escalation from August to September of 2019, cotton prices dropped below 60 cents per pound for the first time since April 2016. As tensions began to ease shortly after, prices began to rebound.1 By winter, cotton prices had climbed to levels over 70 cents per pound, a price level that is commonly considered to be above break-even by many growers.

A New Threat: COVID-19

The onset of winter brought about a much bigger threat to the global economy. The emergence of COVID-19 in China represented a threat to global apparel supply chains which commonly rely on China for one or more inputs even if garments are not sourced from China. As a result, the virus initially resulted in supply issues posed by delayed or uncompleted orders.

The rapid spread of the virus beyond China and general shutdowns in economic activity around the world have meant a collapse in demand.1 It remains to be seen how extensive the damage will be to the global economy and how strong the eventual recovery might be.

Planning & Planting

Despite economic uncertainty, the seasons are progressing. As soils warm, growers need to plant. Regional differences exist in terms of climate and soil types and these differences determine the choice of crops that farmers may have for planting. In certain areas, such as West Texas, where conditions are dry, growers can only plant cotton due to cotton’s drought tolerance. In that region, moisture levels are an indicator of cotton acreage. East of Texas, farmers can often rotate cotton with other crops such as corn, soybeans, and peanuts.

Typically, ahead of planting, growers will study prices for different crops and choose to devote more of their acreage to the one that offers them the best return. This year has been exceptional for its volatility, and the challenge of guessing which crop may represent the best option proves difficult.

The U.S. Department of Agriculture (USDA) conducts surveys to gauge U.S. farmers’ intent early in spring. The results of these surveys are published in the Prospective Plantings Report at the end of March. The 2020 edition suggests that cotton acreage will be nearly even with the level planted one year ago (-0.4%, or 13.7 million acres).4

This finding contrasts with some other predictions released earlier in the year, which called for a reduction in cotton acreage near 10 percent.5 A factor that likely contributed to the higher acreage estimate by the USDA is that cotton prices were able to get above 70 cents per pound later in the winter. A factor that may lead actual planted acres to be lower than the current USDA forecast is that cotton prices have dropped back below 60 cents per pound more recently as the COVID-19 crisis has both widened and deepened.

The next set of USDA acreage estimates are due out at the end of June, after seeds in even the northernmost areas of the cotton belt will have been put into the ground. Since the June figures occur after planting, they are more accurate. Between now and then, the cotton market faces uncertainty regarding how much acreage the U.S. might have this year.

As long as the March numbers are not drastically over-optimistic, there is a threat of a large increase in inventories. Improved weather conditions relative to 2019 could easily result in a harvest of over 20 million bales. With only about 3 million bales of domestic use, this means a near-record volume of cotton will need to be exported to prevent a buildup in stocks (the record for U.S. exports is 17.7 million bales).1 With the global economy in turmoil, it may be difficult to export near the record, and the threat of a substantial increase in warehoused supply could be expected to weigh on prices in the U.S. and around the world.

Article by Jon Devine, Senior Economist at Cotton Incorporated

Hear more from Senior Economist Jon Devine in the recent webinar The Trade Dispute & U.S. Apparel Sourcing.


1. Monthly Economic Letter: April 2020
2. WTO Reports World Textile and Apparel Trade in 2018
3. World Economic Outlook (WEO) Database
4. USDA Prospective Plantings Report
5. Acreage Survey: Cotton Acres Rein In Slightly for 2020