Although my trading experience is limited, my literary background is not. I will therefore refrain from making specific recommendations in the current cotton market. Cotton prices bottomed last summer at 37 cents. We are now over 70 cents. I have a cotton farmer friend that bought several thousands of dollars worth at 37 cents. The contracts increase at a dollar per one tenth of a cent. I will leave the rest of his story to your imagination.
Fundamentally cotton is going to be higher, probably in the coming year. Here are the facts. Cotton carryover last year hit 10 million bales. We only sell 6 million bales a year. The Chinese had a bumper crop also. They put 4 million bales in storage. The Chinese are the major buyer of U. S. cotton and they had plenty of their own. We had the lowest export demand in a decade during the 2008 season.
World Cotton production declined by more than 50% during the 2009 season because of record low prices at planting time. The crop harvest has been delayed by rain. We just had the rainiest October in 25 years. China has the same problem. Only India has ample supplies of cotton for export. The quality of this rained on cotton is significantly below average. The color, strength and thickness were all adversely affected.
Not only was the United States the largest exporter of cotton but also produced the highest quality cotton demanding a premium price. This year the late cotton crop is smaller than expected and the quality maybe the worst in a decade or more. Rain after cotton opens in September is detrimental to quantity as well as quality. Currently traders expect cotton prices to peak in March of 2010.
The first recommendation I have to buy all of the cotton clothing and household goods you can use for the foreseeable future. Cotton clothes, including blue jeans, underwear, t-shirts, pants and dress shirts are the cheapest they will ever be in your life now. The same is true of sheets, towels and cotton household supplies. Cotton prices have a direct affect on your cloth prices. Corn on the other hand has little effect on food pricing. There is about a nickels worth of corn in a pound box of corn flakes.
There is pent up demand in cotton markets. People have been postponing purchases of clothing and household goods for over a year. Even current demand will take out the current cotton carryover. We are now predicted to have only 4.9 million bales of cotton carry. That is a million bales short of normal usage. Prices will inflate. The predictions are somewhere near a dollar a pound. That will drive up the price of cloth significantly. My second recommendation: invest in cotton. As you buy cotton products, buy a March cotton futures contract. Who knows, you could make enough money to pay for all those new clothes.
