Cotton futures have been trading at their highest price in about a decade, with rising Chinese demand being met in part by increased US exports to China, a curiosity of the era’s trade war policies. Trump.
The most active US cotton futures on the Intercontinental Exchange ICE 2.95%
closed Tuesday up 3.8% at $ 1.09 a pound, keeping prices at their highest level since September 2011. Prices have risen 22% in the past 11 sessions.
A rise in clothing prices could eventually follow.
The prices of other raw materials, such as lumber, have increased this year, due to high demand and supply chain issues that prevented goods from reaching customers who wanted them. Prices of other American crops, such as corn and wheat, have jumped this year amid drought in the United States and abroad. Cotton shows the sometimes unexpected effects that trade policy can have on prices.
Last year, President Donald Trump banned U.S. imports of clothing and other cotton products from the Xinjiang region, China’s largest cotton-producing region. The administration said at the time that there was evidence that the products were made with forced labor by the Uyghur ethnic group.
US companies can still import cotton products made in China if the cotton itself comes from elsewhere. So China imports cotton, much of it from the United States, to make goods and ship them back.
China’s appetite for cotton imports is partly satisfied by cotton produced in the United States. % more than at the same time last year.
“If you can’t use cotton from Xinjiang, you have to import a lot more cotton and yarn,” said Peter Egli, risk management director of Plexus Cotton Ltd.
Egli added that China is also meeting its cotton needs from other major exporting countries, such as India.
In a political speech Monday, U.S. Trade Representative Katherine Tai said the United States plans to start a new round of trade talks with China while maintaining tariffs on Chinese imports.
According to the most recent USDA outlook, China’s cotton consumption in the current marketing year is expected to be 41 million bales, or the equivalent of about 8.9 million metric tons. That’s a 24% increase over the past two years of commercialization, in part thanks to a post-pandemic increase in demand for consumer goods.
Fund traders have increased their bullish bets, according to the Commodity Futures Trading Commission, as U.S. farmers begin to reap their crops. The USDA reports that the nationwide cotton harvest is 13% complete and the current harvest looks good, with 62% of them in good or excellent condition, compared to 40% at the same. time last year.
“Conditions are good right now, so the harvest is expected to remain good,” said Jack Scoville, Price Futures Group analyst.
“China has become more active in the world market,” he said, adding that the United States can offer the volume and quality of cotton that China wants.
However, strong Chinese demand for cotton and other raw materials could run out of steam. Power outages have swept across Chinese provinces, with the government sometimes forcing factories to shut down to save energy. The Beijing National Bureau of Statistics reported Thursday that the country’s manufacturing activity contracted in September, ending an 18-month streak of expansion.
“Electricity rationing will limit industrial activity until demand weakens enough to bring the national electricity market back to equilibrium,” said Julian Evans-Pritchard, senior Chinese economist at Capital Economics, in a note last week.
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Write to Kirk Maltais at [email protected]
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