“As a result, what had been huge profits for textile companies worldwide quickly turned into huge losses. Those losses are continuing to influence how much cotton is being planted, or more correctly, how much cotton is not being planted, he adds.

“When cotton prices hit $2.20 a pound, polyesters were selling for less than half that amount. So, mills that could switch from cotton were forced to do so quickly to stay in business in many cases. On a worldwide basis, the cotton industry probably lost 5-6 million bales of cotton to polyester, just because of price of finished goods.”

“The second market, the new market, which is really a return to prices that better fit 20 and 30 year price trends, is now vastly different from the cotton market we knew prior to the 2009-2011 run up on cotton prices.

“The number of defaults on cotton, after the run-up on cotton prices, has risen dramatically. In 2011, there were 244 arbitrations to settle defaults. In the first quarter of 2012, world courts averaged one application for arbitration each week. In the past, arbitrations usually ended up 20-30 cents a pound lower than the contract prices. Now, differentials of 60-80 cents a pound are common,” Marshall says.

Bangladesh is the second largest cotton importing country, trailing only China. If reports from world cotton organizations are accurate, a high percentage of textile mills in the country are broke. The losses in the cotton industry are huge — unprecedented, Marshall says. The fallout, worldwide, he adds, continues to influence cotton down to the grower level.

“In the past the cotton industry owned the cotton exchange. Now, Wall Street investors essentially own the buying and selling of cotton in the U.S.,” Marshall says.

“Wall Street investment managers can throw more money into cotton in a day than the old cotton industry could throw in a month.

“For example, Exxon-Mobile has a market capitalization of nearly $400 billion. That one company could conceivably buy every bale of cotton grown in the world for the next seven years,” Marshall adds.

From the halcyon days of $2.20 per pound cotton, the market has meandered its way through several ups and downs, mostly created by cotton stock building in China, to a low of 68 cents a pound by June 1 of this year.

This type of price volatility has a direct bearing on how many acres of cotton are planted.

rroberson@farmpress.com