by Emmeran Eder, Euro on Sunday
WThe pop band Creedence Clearwater Revival sang there was some money to be made with cotton in the evergreen “Cotton Fields”. It was like that for a long time. But now times have changed.
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Like many other agricultural commodities, the price of cotton has risen sharply. Within a year, it has climbed a good 70 percent from 80 US cents to 138 US cents per pound. One reason for this is the corona pandemic, which has led to delivery problems. Because with India, Pakistan, China, the USA, Brazil, Turkey, Australia and Uzbekistan, eight of the most important growing countries are in regions that were or are still severely affected by the pandemic.
The current extreme heat wave in the Indian subcontinent and in Pakistan is also likely to have an impact on the harvest in these states, which is likely to be weaker than expected.
This is also the case for one of the most important cotton exporters, the United States. The US Department of Agriculture (USDA) expects a six percent lower harvest for the 2022/2023 season – also due to the excessive moisture in the soil in the south-west of the country. As a result, despite an increase in US acreage by one million acres, the crop area is expected to be more than a million acres lower than in the prior-year period.
According to the USDA forecast, global cotton consumption will be almost one percent below the previous year. The reason for this is somewhat lower consumption in the two most important consumer countries, China and India. However, at 26.6 million tons, global demand is still slightly higher than production, so the market remains in a supply deficit for the third year in a row.
Inventories continue to fall
In the current 2021/22 harvest year, the global undersupply is likely to decrease compared to the previous season, but it will still be around one million tons. “The decline in global inventories is therefore likely to continue, albeit at a much slower pace,” explains Carsten Fritsch, agricultural commodities analyst at Commerzbank. The USDA expects global cotton stocks to fall to 18.2 million tons by the end of this crop year.
The rise in the price of cotton should therefore continue, albeit at a slower pace than in the past 12 months. Investors can bet on it with WisdomTree’s Cotton ETC (WKN: A0K RJW). The fee is 0.49 percent.
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Image sources: Moises Fernandez Acosta / Shutterstock.com, Peter Denovo / Shutterstock.com
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