By Henry Gantz
Editor

A recent headline in a Bloomberg story hit me right between the eyes: “Cotton Reaches 15-Year High as China Crop Outlook Dims.”

Technically, I'll grant you, Bloomberg is right. But it’s the pesky qualifier that sort of gets in the way: “Cotton futures for December delivery climbed 1.82 cents, or 2 percent, to 93.11 cents a pound at 10:52 a.m. on ICE Futures in New York, after touching 93.17 cents, the highest price for a most active contract since 1995.”

I don’t want to be picayunish about it, but I’ll still stick with March of 2008 when cotton spiked to over $1 – most active or not – as my benchmark for the time being. There’s something magical about Dollar Cotton, isn’t there? Uh, no – not really, history tells us. That is unless you sold a bunch of it, and I haven’t heard of many that did, other than speculators. Remember what happed soon after cotton topped the dollar-mark in ’08? By October it had fallen below 50 cents and acreage bottomed at 9 million. What happened then was a perfect storm – too much cotton meeting a collapsing economy.

But the supply and demand fundamentals are very different this time around and are ripe to send nearby cotton to $1. (“Move over and let dollar cotton through,” economist Dr. O. A. Cleveland wrote September 10.) China’s crop conditions are deteriorating fast, the Bloomberg report said, citing China’s official Xinhua News Agency. I wonder what China’s food crops are like? If it’s raining on cotton, is it also raining on wheat? China actively bought corn and soybeans from Argentina and Brazil this summer. Food versus fiber in China. How long have we been hearing that?

Meanwhile, U.S. crop conditions have been pretty good. Almost perfect in fact, and USDA projected a 18.84-million bale crop in its September report, up over 300,000 bales from August. So maybe that perfect storm has started blowing in the opposite direction – acreage up, production up, prices up, demand up and carryover shrinking to the point where the stocks-to-use ratio is the lowest since 1995/96.

Guess what happened after that? The A Index the previous year was at 91.31 cents and acreage was at 16.717 million. But we had planted too much cotton to sustain that price, the A Index fell to 85.62 and we lost 2 million acres. By 2002, we were down to 13.714 million acres (although I’d love to be there again) and the A Index was at 41.81 cents. A dangerous trend had already started.

If you look back over the last decade, you’ll see a gradual drop in acreage from 2000, when we had 15.347 million acres, until 2006, when we had 14.948. And then the bottom fell out. We lost almost 4.5 million acres the next year, and it continued until ’09. Not-so-coincidentally, the stocks-to-use ratio was 52.8 percent in 2006/08. With the exception of some occasional anomalies (2008 is an example), the market does its job.

The only caution I would give is: Let’s not get caught in that over-supply situation once more, if we can help it – we’ve been there many, many times. Let’s learn from it. Certainly I’d like to see dollar cotton and 15 million acres again. But what are the odds of seeing both at the same time? What I’d like to see is sustainable growth at a profitable price, a rebuilding of our infrastructure and investment in export facilities. China is the driver for the foreseeable future and one of these days there really is going to be that food versus fiber fight. And when it comes, we’ll be positioned to take advantage of it.