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Not since the Civil War era, says O. A. Cleveland, have the stars been so favorably aligned for cotton. And, the veteran cotton analyst contends, that long-dreamed-of $1 price is likely to be around for some time — perhaps as far out as 2014.
Russian political decision impact on markets
“All this began in 1970 when Russia leadership made a political decision to upgrade the diet of their people, to move them to a meat diet through livestock production. In 1972-73, Russia had the worst wheat crop failure ever. They needed wheat to feed livestock to keep the promise to their people.
“Four to five teams of Russians came to the U.S. and met over a weekend with the primary grain export merchants. Come Monday morning when the wheat market opened —wheat, which had been trading at about $2.50, was up the limit. Tuesday morning, it was up the limit again. News began to leak out that Russia had bought U.S. wheat. Wednesday morning, wheat was up the limit.
“In six months’ time, a $2.50 market was trading at $6. I remember one of my professors telling me, ‘Nobody’s ever going to grow corn again, nobody’s ever going to grow cotton again — everyone’s going to grow wheat.’”
But over the course of two years, Cleveland says, “Commodity prices settled and price ratios fell back into line. High prices had resulted in more wheat acres, and other commodities had lost acreage because of their low price relative to wheat.”
In 2000, he says, another political decision changed the world commodity picture.
“China’s leadership made a decision to upgrade the diet of their people, and they chose to do it through their pork industry. The next year, lo and behold, India’s leaders made a political decision to upgrade the diet of their people with poultry.
“So, we had all those feed animals needing grains, and by 2006-2007 we began to see high prices for all the grains. Wheat, corn, and soybeans were up 100 percent, then 150 percent, and they still are. Now, cotton has joined that Hit Parade price party.”
In 2002, Cleveland says, another political decision roiled the commodity markets — this time when the U.S. committed to major expansion of ethanol production with corn as the feedstock.
“There was an immediate major increase in corn price and corn production. Now, we had wheat, corn, soybeans all essentially competing for the same acre of ground.