Executive Summary
Highlights from the July 2018 edition of Cotton This Month:

• Cotton demand is increasing, with consumption projected to increase 5% in 2018/19.
• Production decreases for USA and India, but increases for West Africa and Brazil are projected in 2018/19.
• Higher production will lead to a 3% increase in stocks in 2017/18, after two years of decreases.
• Murky trade policies have dragged prices down from a season-high of 102 cents. Uncertainty in trade policies may have broad effects, disrupting stability in global trade and economic growth, a driver of consumer demand.

Tight Markets, Uncertain Trade Policies Lead to Global Uncertainty in the Short Term

A combination of factors has muddied the waters of the global cotton market, at least in the short term, according to the July 2018 edition of Cotton This Month. Cotton demand is up, especially in Asia and South Asia, but drought conditions in the West Texas region of the United States and the potential of new tariffs on cotton are serious concerns — and one of the reasons that prices have dropped from a season-high of 102 cents per pound.
Relations between the world’s largest exporter, the United States, and the world’s largest consumer, China, have been tense. China has announced a 25% tariff on uncombed US cotton that is scheduled to go into effect on 6 July.
However, the current price for cotton is still higher than the season average to date — 87 cents per pound — and considerably higher than the 20-year historical average of 73 cents per pound. The ICAC price forecast for 2017/18 is 86 cents per pound. For 2018/19, the Secretariat is projecting the average price to end between 66 and 107 cents per pound.
While both production and consumption are projected to increase in 2017/18, higher production will result in world stocks increasing 3% to 19.3 million tonnes, following two seasons of continual decreases in global stocks. Consumption in 2018/19 is projected to grow 5% to 27.4 million tonnes with production projected at 25.9 million tonnes. With consumption expected to outpace production in 2018/19, global stocks are expected to decrease to 17.8 million tonnes.

* The price projection for 2017/18 is based on the ending stocks to mill use ratio in the world-less-China in 2015/16 (estimate), in 2016/17 (estimate) and in 2017/18 (projection), on the ratio of Chinese net imports to world imports in 2016/17 (estimate) and 2017/18 (projection), and on the average price for the first 11 months of 2017/18. The price projection is the mid-point of the 95% confidence interval: 84 cts/lb to 89 cts/lb.

**The price projection for 2018/19 is based on the ending stocks-to-mill use ratio in the world-less-China in 2016/17 (estimate), 2017/18 (projection) and 2018/19 (projection); on the ratio of Chinese net imports to world imports in 2017/18 (projection) and 2018/19 (projection); and on the price projection for 2017/18. The price projection is the mid-point of the 95% confidence interval: 66 cts/lb to 107 cts/lb.