The worst U.S. crop conditions since the Dust Bowl era of the 1930s are tightening domestic supplies of cotton and boosting prospects for a rebound in prices that fell more than any other commodity this year.
Withering fields in Texas, the largest U.S. grower, led Gov. Rick Perry, a Republican presidential candidate and the son of a cotton farmer, to ask supporters to pray for rain to end a "monster drought" shrinking cattle herds and killing crops. Cotton futures in New York may rise as much as 15 percent by the end of December to $1.20 a pound, the median of 17 estimates in a Bloomberg survey of analysts showed.
"It's by far the worst drought I've ever been through," said Dahlen Hancock, 52, who has farmed cotton for three decades near Lubbock, Texas, and lost more than half of the 5,850 acres he planted this year. "We thought we'd kind of seen it all, to some degree. This rewrote the books."
Shortages in everything from corn to coffee are spurring speculators to buy crops, anticipating that slower economic growth will still mean supply deficits. At a time when bets on higher oil prices dropped 13 percent in seven weeks and those on copper disappeared, wagers on 11 agricultural commodities rose 38 percent, U.S. Commodity Futures Trading Commission data show.
Cotton slumped 52 percent since reaching the all-time high of $2.197 in March and encouraged U.S. farmers to allocate 25 percent more acres to the crop. This year's 28 percent plunge in prices is the worst among the Standard & Poor's GSCI gauge of 24 commodities, which rose 4.2 percent.
The MSCI All-Country World Index of equities fell 9.1 percent, and Treasurys returned 7.2 percent, a Bank of America Merrill Lynch index shows. Costlier fiber may raise costs for clothing companies from Gap Inc. to American Eagle Outfitters Inc.
The drought in Texas and parts of five neighboring states may exacerbate gains in U.N.-tracked world food prices, which held near a record in June. Global corn stockpiles will slide for a third year through August 2012, as a record harvest fails to meet demand, U.S. Department of Agriculture data show. Wheat inventories will shrink for a second year, and soybean supplies will drop, the USDA estimates. Damage to grazing pastures means the U.S. cattle herd on July 1 was the smallest for that date since at least 1973.
The USDA expects 30 percent of the domestic cotton crop will be lost, topping the previous record of 27 percent in 1933, when dust storms wiped out fields in Texas and Oklahoma amid the Great Depression.
Insurance and programs to conserve soil and water are helping today's farmers avoid the same economic devastation, according to Jon Devine, a lead economist at Cotton Inc., a trade group.
Claims will be higher than in recent years because of damage to non-irrigated, dry-land cotton and crops on farms with access to stored water supplies, according to Ted Etheredge, president of Armtech Insurance, the fifth-largest U.S. writer of federally sponsored crop policies.
U.S. farmers are expected to make record profit this year, the USDA estimates. Farm income may reach $94.7 billion in 2011, and cotton farmers' average net-cash profit, or earnings used to pay expenses and debt, may rise 21 percent to $294,200 this year, for a second consecutive gain, the USDA estimated in February.
The U.S. may harvest about 16.55 million bales of cotton in the year that began Aug. 1, down 8.6 percent from an estimated 18.1 million bales in the previous season, according to the USDA. A bale weighs 480 pounds, or 218 kilograms.
Cotton may rally because the United States has "basically run out of stocks this year" until the harvest begins in October, said Peter Egli, a director of risk management at merchant Plexus Cotton Ltd. The government estimates American stockpiles at the end of July were the lowest in 15 years. Inventories in warehouses monitored by the ICE Futures U.S. exchange plunged 86 percent this year.
"This bottleneck situation could temporarily spike prices," Egli said. Manufacturers "don't have to panic," because supplies from Australia and Brazil will compensate for U.S. losses when they are available for shipment in May and June, he said.
Global production is forecast at a record 122.7 million bales, up 7.1 percent from a year ago, according to the USDA. Worldwide consumption will rise 1.1 percent to 115.2 million bales, the estimates show.
