Cotton is currently riding a bull so lively that market analysts find it hard to quantify potential prices. Already at a 15-year high (cotton for December delivery is currently just over 93 cents), cotton prices appear poised to move much higher with news that the Chinese and Indian crops have been hit with rains and frost.

The Indian cotton shortage is so acute that the nation’s textile industry (which employs some 35 million people) has asked for cotton exports to be halted through December. As of Tuesday morning, the Indian government was reportedly studying the request.

Chinese weather has also been less than friendly to the country’s cotton crop.

“We’ve talked about it all year and there are some real problems, there,” said O.A. Cleveland,Mississippi State University Economics Professor Emeritus, during a Tuesday morning panel discussion sponsored by Ag Market Network.“The USDA dropped that crop 500,000 bales last week — and it will probably come down lower.”

In August, “Chinese textile exports set a monthly record. And Chinese textile exports have been higher for 10 consecutive months — setting three new monthly records.

“So, extremely strong demand is hanging around this market.” As of Monday morning, “Chinese prices were at $1.30 and 28 points. And they’re still climbing.”

 

Asian weather

The weather problems in China and India — along with those in Pakistan, which has been hit with devastating floods — have the market “in a near panic,” said Mike Stevens, a trader in Louisiana. “There have been unwanted rains in both India and China and, now, possible frost in a northern (cotton-growing) Chinese province.

“The nervousness about the supply situation has kept upward pressure on Chinese internal prices — both cash and futures. In fact, Chinese prices were through the roof again (Monday night). … I think their spot market is somewhere around $1.30 to $1.35.”

Meanwhile, the Indian Spinners Association “is putting massive political pressure on the government to limit, or even stop, exports,” said Cleveland. “If that comes about it would explode (the cotton) market even farther.”

Stevens said sources close to the Indian crop situation — “and this is where things really broke loose overnight — have expressed real nervousness about their supply situation owing to recent rains.

“India’s textile industry has urged their prime minister to ban cotton exports until January. They complain local mills face serious domestic scarcity and spiraling prices after ‘excessive exports.’”

The proposed ban is so volatile because many were relying on a record Indian crop to bridge the cotton supply gap.

“The argument given by the Indian textile industry … is that if the cotton is exported unabated, the industry will have to reduce capacity,” said Stevens. “That would cause large unemployment. They say only the cotton exportable surplus should leave (the country). … The argument coming from their textile people is pretty strong. The pipelines are empty.”