So contracts were up 100 percent from 2004 to 2010 but only 80 percent from 1990 to 2010? That implies futures contracts declined from 1990 to 2004, which seems unlikely. I suspect from the “moreover” that McClatchy meant that contracts grew 80 percent to 2004 and another 100 percent from there to 2010. This is where a link to the data it’s using would come in helpful, but the chain doesn’t have any links in its piece.
And aside from volatility, it’s worth noting that cotton prices, which averaged about 75 cents in 1990, are up far less than the price of inflation since then. If they’d kept pace with inflation, they’d be about 30 percent higher than they are now.
Again, it’s reasonable to suspect that Wall Street drove the most recent cotton bubble and I don’t doubt there has been a surge in speculators in cotton, as there has been in other commodities. But this piece doesn’t prove it.
Yeah, one thing I'd be looking at before I blame speculators is the weather.
Turns out in Texas cotton country they had a drought during the 2008 spike:
http://www.cotton247.com/production/irrigation/?storyid=710
and one this year too.
http://thinkprogress.org/romm/2011/10/31/357683/crippling-5-3-billion-texas-
drought-hits-global-cotton-beef-peanut-butter-and-even-pumpkin-market/
Although with the loss of global demand and the glut from Chinese producers, the price should have gone down.
#1 Posted by Thimbles, CJR on Wed 30 Nov 2011 at 09:32 PM
Something interesting I stumbled on. Chinese growers have done some hoarding of cotton to try and raise the price to cover increased costs in fertilizer and fuel.
http://online.wsj.com/article/SB10001424052748704680604576110423777349298.html
That was in February. By July the situation had changed:
http://mobile.bloomberg.com/news/2011-06-30/texas-cotton-farmers-may-abandon-record-acres-because-of-drought.html
"Prices have dropped more than 45 percent from the record on signs of slowing global demand, particularly in China. Cotton for December delivery fell by the 5-cent exchange limit, or 4.1 percent, to $1.164 at 10:14 a.m. on ICE Futures U.S. in New York. That’s the lowest since Nov. 30.
“On one hand, output is declining in the U.S., and on the other, demand has taken a severe hit,” said Peter Egli, the director of risk management in Chicago at Plexus Cotton Ltd., a U.K.-based merchant. “Higher prices have rationed demand.”"
The interesting info I got from this article was the effect climate changes are going to have on underwritting:
"Craig Heinrich, a 44-year old farmer near Lubbock, said he already has abandoned half of his 2,400-acre cotton crop because of the drought and high winds. Heinrich said he’ll seek to collect on his policy with Armtech Insurance Services.
“If beneficial rain doesn’t fall in most areas of Texas soon, claims will most likely be higher than in years past,” said Tom Zacharias, the president of Overland Park, Kansas-based National Crop Insurance Services. In 2008, farmers held $90 billion in insurance covering 272 million acres nationwide, the highest liability ever, he said."
If it's true, wow. This was one of the aspects I thought dangerous when we were talking about hedge farm investments.
#2 Posted by Thimbles, CJR on Thu 1 Dec 2011 at 02:38 AM