Economic Observation: The Impact Of Tariffs Imposed By The United States And Canada On The Cotton Market

The United States' bold talk of imposing tariffs on China did not make cotton bow down. It was expected that the tradition of low market prices around Thanksgiving Day came true again, and some habitual actions of American cotton could not be ignored.

Let's review the last tariff increase. The Sino US trade war in 2018-2019 hurt cotton at that time. The main force of ICE reached 60 cents at the lowest level. Therefore, if the tariff increase is implemented next year, American cotton will certainly have the risk of reaching this low point. However, although tariffs are imposed, the current environment and situation are very different from those in those years.

It remains to be seen whether the new US government will continue to increase its weight as it did last time after China and the United States experienced the last positive rigidity. Or, just because of this, the cotton market is afraid, but it is also ready. As long as things do not really happen, everything still needs to be done step by step. For now, cotton seems to have withstood this potential storm relatively well. Cotton futures closed up 1.6% last week, much better than soybeans, corn and wheat.

As American new cotton enters the export state, export sales begin to accelerate. Now Australian cotton has been sold out, while Brazilian cotton is still available, but new sales may be limited by logistics. Therefore, from now on, American cotton export sales will be one of the most concerned reports in the market. Speaking of demand, American cotton exports have been sluggish for more than half a year this year, but the exports of Australia and Brazil were very strong during the same period, so the argument that demand is dead is also too pessimistic. For American cotton, its sales are now on the rise, but it still needs to eat one mouthful at a time. If the price rises too fast, it will be tantamount to self destruction, which Americans also know very well.

At present, the contract in March did not fall to 66 cents in December, but kept the previous low point of about 68 cents. However, after this rebound, the price has returned to the middle position between 68-76 cents, so the market will face resistance at 72 cents. Although the export of American cotton has reached a new high for two consecutive weeks, the price has risen significantly in the past two weeks. It is expected that the export data of American cotton on Thursday will be poor, and the market is ready for this.

According to the latest report of the World Bank, in the third quarter of 2024, the cotton price will fall by more than 6%, 15% lower than the same period last year. In 2024, the cotton price will fall by nearly 10%. However, it is expected that there will be a rebound in 2025 and 2026 due to the slow growth of supply. Nevertheless, there is still a risk that consumption growth will decline, mainly because global economic growth may be lower than expected and global cotton production may be higher than expected. No matter what the final result is, cotton should follow its own pace before macro and external market concerns are realized.