The ultimate fate of the tariffs is a significant wildcard impacting the global market, says NCC

The ultimate fate of the tariffs is a significant wildcard impacting the global market, says NCC

World cotton trade is projected to be higher in the 2018 marketing year, but ongoing trade tensions and increased competition from other major exporting countries have led to a decline in the US trade share, a new forecast shows.

In its latest 'Annual Planting Intentions' survey, the National Cotton Council (NCC) points to a few key factors that will shape the US cotton industry's 2019 economic outlook.

"This past year can be characterised as a year with significant uncertainty and volatility in the global economy and the world cotton market," NCC economists say. "For this outlook, the ultimate fate of the tariffs is a significant wildcard impacting the global market."

Based on positive statements resulting from the recent negotiations between the US and China, the NCC assumes additional tariffs being imposed by the two countries will be removed in advance of the 2019 cotton marketing year.

In her analysis of the survey results, Dr Jody Campiche, the NCC's vice president for economics and policy analysis, notes despite the decline in America's trade share, the US will remain the largest exporter of cotton in 2018 with exports projected to reach 15m bales in the 2018 marketing year.

Prior to the implementation of tariffs, the United States was in a prime position to capitalise on the increase in Chinese cotton imports. With the imposition of the 25% tariff, China has turned to other suppliers during the 2018 marketing year, allowing Brazil, Australia, and other countries to gain market share. Vietnam is currently the top export market for the 2018 crop year, followed by China and Mexico.

For the 2018 crop year, China is expected to import 7.5m bales, which is 1.8m bales higher than in 2017. The gap between China's cotton consumption and production is currently around 13m bales, while the reserve stock level now is considered to be approaching a normal or maintainable level, and China is expected to increase imports in 2019.

The reserve stock level now is considered to be approaching a normal or maintainable level, and China is expected to increase imports in 2019.

Meanwhile, US exports are projected to increase to 17.4m bales in the 2019 marketing year. If realised, it would represent the second highest level of US exports, second only to the 2005 marketing year.

Campiche adds world production is estimated to increase by 7m bales in 2019 to 125.5m, which would be the highest level since the 2011 crop. In addition, stocks outside of China are projected to increase to a record level in 2019.

"As with any projections into the future, there are uncertainties and unknowns that can change the outcome," NCC says. "For the coming year, a key factor affecting the US cotton industry is the ongoing US-China trade dispute and the 25% tariff on US cotton imported into China.

"Under a scenario with tariffs remaining in place, the projected expansion in world trade and the opportunity to backfill trade into other markets would allow US exports in the 2019 marketing year to increase from 2018, but not to the extent as expected in the absence of tariffs. The longer-term imposition of tariffs also would dramatically increase the likelihood of permanent losses in market share in China."