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Tuesday, February 20, 2007

Cotton Presents a Bumper Crop of Potential

Barclays says corn and cotton may outperform oil this year thanks to increasing demand for ethanol and Chinese demand for cotton for textiles. As ethanol production rises, farmers plant more corn and less cotton. That scarcity drives up cotton prices.

Here is a piece I just wrote ...

Farmers are turning from planting cotton to planting corn. As long as the government is throwing money at ethanol – 51 cents per gallon – farmers would be silly not to plant corn. After all, federal corn subsidies totaled $37.3 billion between 1995 and 2003. That's more than twice the amount spent on wheat subsidies, three times the amount spent on soybeans, and 70 times the amount spent on tobacco. Now add the ethanol subsidy on top of that and you can see why corn is becoming VERY popular with farmers.

Heck, showing that the Bush administration has yet to meet a boondoggle it doesn’t like, Energy Secretary Samuel Bodman told reporters on Monday that perhaps America should have a strategic ethanol reserve. That would be even more money thrown at corn. And that means even less acreage available for cotton.

Meanwhile, on the demand side, China's cotton consumption from 2002 to 2005, increased 62% to 9.7 million metric tonnes, thanks to the rapid growth of Chinese textile exports. China's cotton consumption in 2007 is expected to reach 11 million tonnes, including 4.4 million tonnes of imports. By 2010, its total imports should hit 5 million tonnes.

And hey, Australia, the world’s fourth-largest cotton exporter, just cut its forecast for its current crop by 7.7% to a 20-year-low, thanks to a horrible drought.

All in all, this sounds like 2007 could be a good year for cotton.

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