For a commodity, prices have not been very volatile, and anyway there are
cheap substitutes for an already cheap product. Lately, though, some
clothing retailers have threatened to increase prices, blaming the cost of
cotton, which could soon reach a 15-year high.
Unlike wheat and barley, cotton is not just reacting to this summer’s crazy
weather. True, large parts of Pakistan, the world’s fourth-largest cotton
producer and second-largest importer, are under water.
Prices rising
But prices have been rising steadily for 18 months, after four years of
consumption exceeding production, according to the US Department of
Agriculture. The USDA forecasts this year’s stockpiles will be only about 40
per cent of annual demand, the lowest level for 15 years.
The production problem has been centred in the US, the world’s biggest
exporter (China is the biggest producer). Heavy government cotton subsidies
notwithstanding, many American farmers switched from cotton to soya beans.
Price was one factor: with the brief exception of the 2008 commodity bubble
spike, cotton prices spent most of the past decade bumping around the levels
of the 1980s. Soya is about 50 per cent higher, and easier to grow to boot.
Extra supply
But farmers may be responding to higher cotton prices. The USDA says US
acreage has increased by 20 per cent this year. Because India has curbed
exports and Pakistan is swamped, American cotton farmers will probably rake
it in this year.
But the extra supply comes just as the global recovery is weakening and with a
dispute on the legality of US subsidies still unresolved. Farmers (and
cotton bulls) should make hay - or cotton - while the sun shines.
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