It's So Dry in Texas that Some Areas Now Resemble the Dust Bowl, And It's Fueling Cotton Futures
Cotton planting sits at 7% nationwide, right on track with the five-year average planting pace. And as drought blankets the home of what’s known as the largest cotton patch in the country, dwindling crop outlooks are feeding cotton prices.
May cotton is trading above $140, with October closing in on $130. Darren Hudson is the Larry Combest Endowed Chair and director of the International Center for Agricultural Competitiveness at Texas Tech University and follows the cotton market closely. And he says cotton futures aren’t trading at record levels, but it’s rare to see prices this high.
“The current DEC22 contract price has only been observed at any point during a trading year two or three times since 1980,” says Hudson.
So, has cotton caught the inflation bug? Or are there other fundamental factors fueling cotton futures this year? Hudson says it’s a combination of things, including the concerns over where final cotton production numbers will end up in the U.S.
“There is outside money, but the High Plains is in a serious drought and facing very bleak prospects for a crop at the moment,” Hudson adds. “The last time it was this dry was in 2011, and we saw prices trade in the $140 to $150 range. That is not outside the realm of possibility here, either. In addition, India has opened imports to cotton without import duty given their high prices and that has moved the market higher, as well.
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India is the world’s largest producer of cotton, and on Wednesday, the country announced it will allow duty-free imports of cotton until Sept. 30. The government said the move was being spurred by prices in the local market that had jumped to a record high because of a drop in the production.
Those production concerns aren’t just in India. As Hudson pointed out, West Texas is seeing historic drought.
“It is as dry as I can remember it ever being,” he says. “2011 was very bad as well, but this year we are starting out the year with little to no subsoil moisture. So, it is dry on top of dry. Not a good situation because even if it does rain this month pre-planting, there is nothing underneath that in the soil to keep a crop going.”
Texas cotton growers are already looking for solutions, knowing without rain in the next month, a cotton crop isn’t likely to take root in the extreme drought conditions. And traders seem to be already taking note of that fact.
“USDA said that the intentions are 12 million acres, roughly, on cotton plantings,” says Brian Grete of Pro Farmer. “Now, they may get that planted, but are they going to get harvested? I think that that's the bigger issue. And we probably are going to see some higher abandonment rates on cotton than what we do in a normal year, if those acres do get seeded to cotton to begin with.”
97% of Texas is covered in drought, according to the most recent U.S. Drought Monitor, which is a 2-point growth in just a week’s time. 14% of the state is already seeing D4, which is the most severe level of drought, and with the heat this summer and no moisture in the soils to start, the combination won’t be good for growing cotton.
