Cotton Boom Goes
Bust as Rain-Soaked
Texas Crop Sets Glut
By Marvin G. Perez
Bloomberg.com
The cotton market went from boom to bust in less time than it takes a farmer to grow a single boll.
Two months ago, a drought threatened output in the U.S., the world’s largest exporter, and stockpiles were heading for a two-decade low. Then came the rains in Texas, the top grower, sparking a planting surge that the government said will send inventories to a six-year high before the 2015 harvest.
The “stunning” weather reversal may boost U.S. output by 32 percent, Plexus Cotton Ltd. said in a report. Prices that in March were the highest in 25 months are now down more than any commodity this year. Rising supply will help extend a global surplus into a fifth year, reducing costs for clothing makers including Hanesbrands Inc. Futures may drop 6.1 percent to 67.7 cents a pound by year end, the lowest since June 2012, a Bloomberg survey of seven analysts showed.
“The growing season is proceeding well here, they have pretty good rains in Texas,” Donald Selkin, who helps manage about $3 billion of assets as chief market strategist at National Securities Corp. in New York, said June 27. “Global supplies are going to be very ample. Any supply concern has been eased off.”
Cotton futures fell 15 percent this year to 72.06 cents on ICE Futures U.S. in New York, down 26 percent from a high of 97.35 cents on March 26. The Bloomberg Commodity Index of 22 raw materials gained 6.7 percent since the end of December, while the MSCI All-Country World Index of equities advanced 6.3 percent. The Bloomberg Treasury Bond Index rose 2.6 percent.
Drenching Rain
In the cotton belt of West Texas, the biggest U.S. growing region, rainfall over 60 days through June 23 was as much as 8 inches (20 centimeters), double the amount from a year earlier and the most during the planting season since 2007, according to World Weather Inc. Texas has been mired in drought for much of the past four years, which helped cut the state’s cotton output in 2013 by 17 percent.
Eddie Smith, who has been growing cotton since 1973, said he was inspired by the improved soil moisture. He increased planting of the fiber to 3,200 acres (1,295 hectares) from 2,600 acres last year on the 5,000 acres he farms in the Texas counties of Crosby and Floyd, where he also produces wheat and sunflowers.
“The fields look much better than in the last four years,” Smith, 63, said by telephone June 19 from Floydada, Texas. “The rainfall has been stunning. The crop potential is excellent.”
The government agrees. The U.S. Department of Agriculture on June 11 raised its production forecast from a month earlier by 3.4 percent to 15 million bales, a 16 percent gain from last year. Plexus said the crop may exceed 17 million. On June 30, the USDA said planting rose 9.2 percent to 11.37 million acres.
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