Cotton prices hit another record earlier today. As noted by the San Francisco Chronicle:
Cotton futures in New York jumped to a record, gaining by the daily limit for a third day, on signs that growers may struggle to meet mounting demand from China, the world’s biggest consumer.
Cotton for March delivery gained 2.7 percent to $1.5412 a pound on ICE Futures U.S. in New York at 4:15 p.m. Tokyo time. Prices have more than doubled this year, heading for the biggest annual gain since 1973.
Output in China’s Shandong province, the nation’s second-biggest producer, dropped 22 percent this year from 2009 after natural disasters hurt crops, the region’s Agriculture Information Center said in a report Dec. 17. Demand in China is forecast to exceed supply by 17 million bales in the year ending July 31, according to the U.S. Department of Agriculture.
What’s behind this move? Well, judging by everything I’ve read so far, it sounds like good old-fashioned demand (up) and supply (down).
But just to be sure, I decided to check in with two famous economic commentators. I tracked down the talking “bunnies” over on YouTube (ht SK) and, sure enough, they agree that supply and demand fundamentals are what’s driving the cotton market.*
Unfortunately, the critters have a much more serious tone than in their famous explanation of QE2 (except for some gratuitous language at the very end, which tries to pay homage to their earlier work). But they do speak with authority
Update: Unfortunately, the critters have gotten shy. No public video now (12/22).
* OK, these guys don’t really look like bunnies. More like stuffed animals — perhaps dogs or bears. Which, come to think of it, would make them even more expert on cotton markets.
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