Interviews
News Flash
NY cotton futures extend decline this week
26 May '12
5 min read
Prices were depressed across the spectrum and while US farmers had the safety net of the farm program, production in other areas of the globe got discouraged. Then two things happened that drastically changed the situation – a rapidly growing middle class in emerging markets and the use of corn for ethanol.
The rapid rise of the middle class in Asia, particularly China, has led to a never before seen increase in food demand. Not only has the world population grown from 6 to 7 billion people since the year 2000, but as more people around the world are joining the middle class, their caloric intake tends to increase.
As incomes grow, people change their diet from staple foods like rice, wheat, corn and vegetables to one that includes a lot more animal protein. Because it takes about 7 pounds of feed grain to produce one pound of beef (a little less for pork and chicken), demand for food will grow at a lot faster pace than what population growth and caloric consumption changes may suggest.
We believe that we have reached a point at which the world will continually struggle to meet ever-increasing levels of demand. Gone are the days of cheap food and vast stockpiles, and if cotton chooses to take itself out of the race for acreage by keeping its price too low, then competing crops will gladly take over its acres.
So where do we go from here? We believe that prices have fallen enough for now, as sellers are becoming more reluctant to short the market below 70 cents, while buyers are expected to show up in greater numbers once prices stabilize. Rallies should be short-lived though, as there are still plenty of growers waiting for an opportunity to put on some hedges if the market gives them another chance. Later this summer we don't rule out even lower prices, but for that to happen we need to see some good crop progress first.
The rapid rise of the middle class in Asia, particularly China, has led to a never before seen increase in food demand. Not only has the world population grown from 6 to 7 billion people since the year 2000, but as more people around the world are joining the middle class, their caloric intake tends to increase.
As incomes grow, people change their diet from staple foods like rice, wheat, corn and vegetables to one that includes a lot more animal protein. Because it takes about 7 pounds of feed grain to produce one pound of beef (a little less for pork and chicken), demand for food will grow at a lot faster pace than what population growth and caloric consumption changes may suggest.
We believe that we have reached a point at which the world will continually struggle to meet ever-increasing levels of demand. Gone are the days of cheap food and vast stockpiles, and if cotton chooses to take itself out of the race for acreage by keeping its price too low, then competing crops will gladly take over its acres.
So where do we go from here? We believe that prices have fallen enough for now, as sellers are becoming more reluctant to short the market below 70 cents, while buyers are expected to show up in greater numbers once prices stabilize. Rallies should be short-lived though, as there are still plenty of growers waiting for an opportunity to put on some hedges if the market gives them another chance. Later this summer we don't rule out even lower prices, but for that to happen we need to see some good crop progress first.
Plexus Cotton Limited
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