Rebound in cotton prices looms as drought chokes Texas


CHICAGO – The worst U.S. crop conditions since the Dust Bowl era of the 1930s are tightening domestic supplies of cotton and boosting prospects for a rebound in prices that fell more than any other commodity this year.

Withering fields in Texas, the largest U.S. grower, led Gov. Rick Perry, a Republican presidential candidate and the son of a cotton farmer, to ask supporters to pray for rain to end a “monster drought” shrinking cattle herds and killing crops. Cotton futures in New York may rise as much as 15 percent by the end of December to $1.20 a pound, the median of 17 estimates in a Bloomberg survey of analysts showed.

“It’s by far the worst drought I’ve ever been through,” said Dahlen Hancock, 52, who has farmed cotton for three decades near Lubbock, Texas, and lost more than half of the 5,850 acres he planted this year. “We thought we’d kind of seen it all, to some degree. This rewrote the books.”

Shortages in commodities from corn to coffee are spurring speculators to buy crops, anticipating that slower economic growth will still mean supply deficits. At a time when bets on higher oil prices dropped 13 percent in seven weeks and those on copper disappeared, wagers on 11 agricultural commodities rose 38 percent, Commodity Futures Trading Commission data show.

Cotton slumped 52 percent since reaching the all-time high of $2.197 in March and encouraged U.S. farmers to allocate 25 percent more acres to the crop.

This year’s 28 percent plunge in prices is the worst among Standard & Poor’s GSCI gauge of 24 commodities, which rose 4.2 percent.

The MSCI All-Country World Index of equities fell 9.1 percent, and Treasuries returned 7.2 percent, a Bank of America Merrill Lynch index shows. Costlier fiber may raise costs for clothing companies from Gap Inc. to American Eagle Outfitters Inc.

The drought in Texas and parts of five neighboring states may exacerbate gains in United Nations-tracked world food prices, which held near a record in June. Global corn stockpiles will slide for a third year through August 2012, as a record harvest fails to meet demand, Department of Agriculture data show. Wheat inventories will shrink for a second year, and soybean supplies will drop, the USDA estimates. Damage to grazing pastures means the U.S. cattle herd on July 1 was the smallest for that date since at least 1973.

The USDA expects 30 percent of the domestic cotton crop will be lost, topping the previous record of 27 percent in 1933, when dust storms wiped out fields in Texas and Oklahoma amid the Great Depression.

Insurance and programs to conserve soil and water are helping today’s farmers avoid the same devastation, according to Jon Devine, a lead economist at Cotton Inc., a trade group in Cary, N.C.