Soaring prices for cotton on world markets this year, and especially in recent weeks, probably attracted scant attention from grain-based foods. That neglect would be a mistake for several reasons. None is more important than the way that cotton does compete for acreage with wheat and other grains. That cotton has risen to the highest levels in recorded history, at least in futures trading for the past century and half, means that it has gained a competitive advantage, regardless of the strength also displayed by wheat. Cotton prices have climbed more than 70 per cent this year, which is nearly five times the sizable percentage gain posted in wheat. The result of these soaring prices is reflected in this year’s cotton crop, estimated at nearly 19 million bales, contrasted with 12 million last year. That outturn originates with the 19 per cent increase in plantings to 11 million acres.
Supply-demand factors influencing skyrocketing cotton prices are not all that different from forces at work in wheat. Both are crops with production influenced by weather variations. This provides another reason for awareness of what is driving cotton to historic highs. Even someone untutored in the workings of the global textile business should not be surprised that a sudden expansion in cotton demand in China combined with concern about the status of that country’s crop size to spur price gains. Cotton mills in China have been described as in “a near-constant panic” for fear of shortages of this raw material.
That China is the world’s largest user of cotton textiles, like it similarly ranks as the global leader in wheat consumption, is expected. What is important, though, is the way that demand has grown exponentially as the country’s standard of living rises. Without allowing for poor weather and its negative effect, China’s cotton crop already was believed to be nearly 19 million bales smaller than likely domestic use. China’s only answer so far to this deficit has been encouraging mills to avoid speculative purchases and to do whatever is possible to stabilize the market. Also threatened are government steps “to boost management of the industry,” a promise of stern steps in China.
For grain-based foods, cotton advancing the daily limit in New York signals once again the power of global developments to prompt dramatic moves in seemingly domestic markets. Cotton at $1.4711 a pound, the highest in 140 years, in New York, and at an all-time high of 33,000 yuan per tonne on the Zhengzhou Commodity Exchange, do not directly have a role in wheat. Yet, this is the sort of development that can be a powerful influence on prices for basic food ingredients as well as in making textiles.
Not having to worry about the cost of cotton and cotton textiles also reminds of how shipping wheat flour has changed in a short period of history. It was only 50 years ago that bulk transportation of flour became a reality with the introduction of the first rail cars equipped to handle flour in bulk. Prior to that, flour was shipped in multiwall paper bags. For the period from World War I to the end of World War II, cotton bags served as the mode of transporting flour from mills to retail and commercial users. Thus, reporting on cotton markets as determining the cost of bags to carry flour and of burlap (jute) bags for millfeed was an important service of this magazine until bulk became dominant. Cotton upturns similar to those of recent weeks would have caused upsets matching anything attributed to what happened recently to wheat prices.
Many flour milling efficiencies reflect the fundamental shift in transforming the industry to bulk shipping from paper and cotton bags. Yet, as recent events have shown all too well, it is still unwise to neglect cotton developments which may seriously impact prices and costs of wheat and wheat flour.