Cotton Prices Near 3-Year Low With No Sign of Turnaround
June 14 2019 - 11:06AM
Dow Jones News
By Kirk Maltais
U.S.-China trade tensions have shaken all agriculture
commodities markets, but perhaps none more than cotton.
Cotton futures on the Intercontinental Exchange have fallen 26%
since the U.S. and China instituted competing tariffs on each
other's exports starting last July. Cotton losses this year trail
only natural gas, orange juice and live cattle among
commodities.
The U.S. exports most of the cotton it grows, and China,
although the second-largest producer after India, is the world's
largest importer of the fiber.
Traders say the U.S.-China back-and-forth has been the primary
issue weighing down prices. "[Cotton futures] have interestingly
avoided being moved by any other subject," said Bailey Thomen, a
risk management associate with INTL FCStone.
In the run-up to a particularly tense round of negotiations in
late April into May, cotton futures dropped 17% to a three-year low
close of 65.45 cents a pound May 13. Since then, the price has
moved little, trading above 66 cents a pound Friday.
This isn't the first time China has prompted swings in the U.S.
cotton market. In 2011, China was buying large amounts of cotton,
which pushed futures as high as $2 a pound. But when China figured
it had enough of the fiber in storage, it stopped buying and prices
slid to below 60 cents a pound by June 2012.
U.S. cotton exports to China fell 50% through April to 149,478
metric tons, according to data from the U.S. International Trade
Commission.
Soft commodities traders expect cotton prices to stay around 65
cents a pound or even sink through the remainder of the year.
According to Tyler Herrmann, a market strategist with RJO Futures,
cotton futures on the ICE could slide as far as 55 cents a pound,
which would be the lowest level since late 2010.
The low prices could discourage U.S. farmers from planting the
crop. According to the Department of Agricultural and Resource
Economics at NC State University, the break-even cotton price for
farmers ranges from 65 cents to 70 cents a pound.
Gary Adams, president and CEO of the National Cotton Council,
said the break-even price is even higher than that, closer to 75 to
80 cents a pound.
"That's much more in line with the cost of production," Mr.
Adams said.
The lower cotton prices could benefit U.S. clothing retailers.
However, those with manufacturing operations in China are looking
for other options as the trade dispute persists, introducing
uncertainty into their supply chains.
"We have been working on strategies to reduce our overall
exposure into the China market," said Francis Conforti, finance
chief for Urban Outfitters Inc. (URBN)
Urban Outfitters said it sources roughly 25% of its goods from
China and hopes to reduce this to 20%. J.C. Penney Co. Inc. (JCP),
Kohl's Corp. (KSS) and other retailers are trying to shrink their
Chinese exposure, which includes apparel made from cotton.
Write to Kirk Maltais at kirk.maltais@wsj.com
(END) Dow Jones Newswires
June 14, 2019 10:51 ET (14:51 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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