Aug. 28 (UPI) — While soybeans have remained front and center in the United States trade war with China, American cotton is quietly facing its own tariff-induced crisis.
Cotton was among the first round of agricultural commodities China hit with retaliatory tariffs in summer 2018. Its price has been slowly declining ever since. And, this summer, it dropped below the level most farmers need to make any money from their 2019 harvest.
“A U.S. farmer really needs futures prices to be 75 cents or higher to be profitable,” said John Robinson, a professor in agricultural economics and an extension specialist in cotton marketing at Texas A&M University.
In May, the price dropped below 60 cents per bale — and it has remained there. Industry experts say there is little chance it will rise again until the trade war ends.
“It is tough, very tough out here on the farm,” said Jimmy Webb, a fourth generation Georgia cotton grower. “Prices are in the tank. It is tough to make a living.”
But despite the increasingly dire situation, the plight of cotton has been largely eclipsed by other commodities hit with Chinese tariffs. This is partly because the impact on cotton was slower to take hold than some of those other commodities.
Despite having the world’s largest textile industry, China over the last few years was not the leading importer of U.S. cotton, said Jody Campiche, the vice president of economics and policy analysis at the National Cotton Council of America.
Around 2011, China began buying huge quantities of cotton, mostly from its own farmers, and stockpiling it in government reserves. The country quickly stored many millions more bales than its textile plants needed.
Over the next several years, China’s imports slumped while it lived off those reserves.
The United States exported some cotton to China during that time. And exports to other markets, like Vietnam, India and Bangladesh increased to take up the slack.
By the start of 2018, however, China had used up most of its reserves and was preparing to ramp up imports.
“They suddenly became a big importer again,” Campiche said.
The U.S. cotton industry was preparing to meet the anticipated increase in demand when the tariffs hit.
“For the 2018-2019 crop year, we expected to export more than 3 million bales of cotton to China,” Campiche said. “We ended up exporting 1.6 million bales.”
Instead of exploding, America’s sale of cotton to China shrank — along with the value of U.S. cotton.
Declining direct sales were partly to blame, experts say. But they were not the only factor.
“It is the uncertainty that is really creating the whole situation,” Robinson said. “Buyers, they don’t know what the next tweet will be, the next tariff, if China will cancel existing sales. There is just this cloud of uncertainty. That’s bad for business.”
And there are other issues that the trade war has created, Robinson said. Other key cotton importing nations have started to demand lower prices for U.S. cotton, aware that American companies are becoming more desperate to sell.
What’s more, because cotton prices were slower to fall, many Southern farmers who normally plant corn or soybeans switched to cotton this spring.
“I watch the market signals to swing between corn and cotton,” Webb said. “This year, I swung it to cotton. I swung it in the wrong way.”
According to the U.S. Department of Agriculture, cotton acres grew by 23 percent from last year. The sudden increase in supplies pushed prices down further.
And the trade dispute is affecting the cotton industry in another way — it is causing China’s economy to slow. That slump means the nation’s demand for cotton in general is decreasing, which is reducing demand worldwide, Campiche said.
“The impacts on cotton are indirect, but no less significant,” said Darren Hudson, a professor of applied economics at Texas Tech University.
Farmers are starting to feel the pressure, Hudson said.
Like other commodities, they are being helped by federal aid from the Trump administration’s $16 billion Market Facilitation Program. But those payments don’t make up for all the lost income, Campiche said. And they won’t help if prices remain low.
“To me, I like what the president is doing,” Webb said. “China has always been a big bully. This is going to be good in the long run. But it is hell in the short run. And the question is, how long will it last?”