Tough Times for Cotton may Drive Prices Up 48 Percent
October 27, 2009 Bloomberg
Yi Tian
Cotton prices may jump 48 percent to a 14-year high because heavy rains in the Mississippi Delta are eroding output in the U.S., the world’s biggest exporter, said Dennis Gartman, an economist and hedge-fund manager.
“It’s possible for cotton to get to $1 a pound within 18 months,” Gartman, the editor of the Suffolk, Virginia-based Gartman Letter, said in a telephone interview on Oct. 20. “Rain is the arch nemesis of cotton quality and harvesting. One dollar doesn’t sound like the rantings of a wild-eyed bull, but the harsh reality.”
Since the harvest began on Sept. 1, cotton prices jumped 17 percent to 68.55 cents a pound through yesterday. The wettest September since 1913 in Arkansas and Mississippi combined drenched the crop when some bolls were open, exposing the fiber to damage. Output may drop to a 20-year low, said Joel Widenor, a director of agricultural services at Commodity Weather Group.
Cotton on ICE Futures U.S. last topped $1 in June 1995. The price has gained 37 percent this year. Futures for December delivery fell 1.7 percent to 67.38 cents today in New York.
On Oct. 9, the U.S. Department of Agriculture reduced its annual-production estimate by 3.3 percent to 13 million bales from a month earlier. Another cut is on the way because of the intensity of the Delta rains in the past two months, analysts said.
Arkansas, Mississippi and Louisiana combined probably will get 23 inches (58 centimeters) of rain this month, the highest level since 2002 and about twice the 30-year average, Widenor said. The states make up the Delta cotton region, the second- biggest growing area in the U.S.
Arkansas, Mississippi
In September, Arkansas, the third-biggest U.S. producer, had 8.31 inches, the most in 96 years, while Mississippi, the No. 8 grower, got 7.79 inches, the wettest in seven years, Widenor, based in Bethesda, Maryland, said in an interview.
“We’re going to be looking at some serious quality impact,” Widenor said. “Also, this is something that is going to have a really substantial impact on the Delta cotton production.”
Output in Arkansas and Mississippi may be at least 20 percent less than government projections, Widenor said, citing a study of crop ratings. That would mean an additional 2 percent loss in U.S. production, reducing the harvest now under way to 12.7 million bales, the smallest since 1989, he said. A bale weighs 480 pounds, or 218 kilograms.
Poor Conditions
In the week ended Oct. 18, more than a third of the Arkansas crop and almost half of Mississippi’s cotton was in poor or very poor condition, the lowest rating for that time in both states since 1986, Widenor said.
While the weather was dry over the past weekend, more precipitation is forecast in the following weeks. November may not be “quite as wet as in recent weeks, but still near to above normal,” Widenor said.
“The harvest has been in a frenetic pace since last weekend,” Rogers Varner, the president of broker Varner Bros. in Cleveland, Mississippi, said in a report on Oct. 21. “A couple of sources in the north Delta said that quantity loss is less than 10 percent, but grade losses were substantial.”
Varner, who said the current harvest is one of the wettest in 20 years, estimated the crop would be 12.75 million bales.
Texas is the biggest U.S. producer, followed by Georgia. North Carolina is the fourth-largest, followed by Missouri. Louisiana is 11th.
(Find story in original format here.)
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