“So, if we look at the rest of the world, excluding China, the stocks-to-use ratio is in the range that’s sort of neutral to slightly bullish. While there’s a lot of unused cotton in the world, a lot of it is being held off the market.”

Unfortunately, Reichle says, 2012 numbers don’t look any better.

“We’re actually going to reduce world production by about 9 million bales through fewer acres planted, which indicates growers are responding to lower cotton prices and higher grain prices by growing less cotton.”

At the same time there’s record carryover, Reichle points out, “growth in demand is very slow — it’s projected to increase by only about 2.2 percent next year.

“The net result is that world stocks are projected to climb again next year and the stocks-to-use ratio will still be high at 66 percent. So, the job of the futures market is to keep cotton relatively cheap, make man-made fibers more expensive, and at the same time, get rid of excess acres in the world.”

And the job of the grains futures market, he says, is to “stress demand and increase supply, because there is such a shortage, especially in view of the South American weather earlier this year that limited their production, and now the drought in the U.S. Midwest.”

Looking at the last 12 years of world cotton production/consumption, “what we’ve been through in the last three years is absolutely remarkable,” Reichle says.  “Prior to that, cotton prices were not going up in concert with grain prices. Finally, about in 2009, cotton production had to go up because we had one year in which we consumed 16 million bales more than we grew. 

“Unfortunately, that led to $1 and $2 cotton, which most producers didn’t get to take advantage of. But that led to a big change in production and a drop in consumption, and we produced 16 million bales more than we used.

“That kind of volatility is never good,” Reichle says, because of its adverse impact on consumption.

“When cotton prices went above $1, things were still OK from a consumption perspective, but when we started getting into $2 cotton and we started seeing 20-cent and 30-cent price moves in a day — more than we used to see in a year — textile mills around the world started making their products with something other than cotton.”

The 2011 Supply and Demand reports showed a steady decline in the use of cotton — an 11 percent drop in demand during an 18-month period, Reichle says.

“In 2002, cotton accounted for 38.7 percent of all fibers used in the world. In 2011, that had dropped to 31 percent.

During 2009, 2010, and 2011, the world was using more fiber, but cotton’s share was not only dropping, actual cotton consumption was going down — and that decline was in response to much higher cotton prices than the historical average.”

During the period when ethanol production was driving up corn prices, and ultimately soybeans, producers around the world cut their cotton acreage in favor of those crops, Reichle says.

“When supplies cotton supplies began to get tight and prices went to 80 cents, 90 cents, $1, and $1.50, producers began planting more cotton. When the price dropped below $1 this year, cotton plantings went down.”