The story behind $1-a-pound cotton

The current high price of cotton is the result of a convergence of factors, including a major reduction in the world cotton supply, the declining value of the dollar and growing demand, Southeast Farm Press reports.

Plexus Cotton Risk Manager Peter Egli, speaking at a recent Ag Market Network’s teleconference, noted that over the past few years annual world cotton production deficits of between 2 million and 3.7 million bales have slowly but surely been whittling down stocks.

In 2009-10, however, the production deficit blew up to 16.4 million bales due to production shortfalls in major cotton-producing countries, he added.

The deficit “is by far the biggest on record,” Egli said, according to Southeast Farm Press. “The jury is still out in regard to the current season. But at the moment, USDA projects another seasonal deficit of around 4.1 million bales.”

The weekly world market price of Upland cotton was almost $1.03 per pound as of Thursday, according to the USDA’s Agricultural Marketing Service.

Mark Bagby, spokesman for Bakersfield, Calif.-based Calcot, a cotton marketing cooperative owned by cotton producers in California, Arizona, New Mexico and Texas, said the biggest factor behind the upturn in prices is demand.

“Due to reduced demand in the economic crisis, the world began to cut its planting of cotton acreage,” Bagby told the Bakersfield Californian. “But they went too far and cut too much, so when the weather problems came there wasn’t enough cotton. Now it’s a simple matter of not enough supply to meet demand.”

Because cotton needs between 180 and 200 days to grow, it’s not possible to ramp it up on short notice, the paper added.

The behavior of the Chinese government has only boosted the bullish theme, according to Egli. “There has been a massive effort to auction off reserve stocks to keep local markets supplied with cotton. Since May 2009, the Chinese government has auctioned off about 15.2 million bales of its reserve, a figure which does not include a recent allocation of about 1.3 million bales.”

That shortfall is reflected in cotton futures prices, which have hit their highest level since Reconstruction 140 years ago.

The December cotton contract hit nearly $1.20 a pound last week on the IntercontinentalExchange, officially the highest price since records began back in 1870 with the creation of the New York Cotton Exchange.

During the War Between the States, cotton prices rose to as much as $1.89 a pound, according to records kept by the Mississippi Historical Society. Cotton prices were driven skyward when, early in the war the South halted exports in a failed attempt to draw Europe to its defense, then later, the North imposed a blockade, which hurt Confederate efforts to ship cotton overseas.

It should be noted that while the current price is the highest since 1870, if you were to adjust it for inflation, it would have to reach more than $20 a pound to equal the $1.20 of 140 years ago.


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