Here’s what’s behind the surge to a10-year high

Cotton price is at its highest level since June 2011. The surge, which will likely continue in the foreseeable future, is due to rise in demand, surging costs of raw materials, and weather woes in the US.

Weather woes

The US, a major producer of cotton in the world, has been experiencing drought in recent months.  Northwest Texas, which accounts for about 40% of the country’s cotton production, is one of the affected regions. Indeed, there appears to be a comparison between the harsh weather conditions recorded in central US since early January and those recorded in 2011.

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

About 11 years ago, the experienced drought pushed cotton price to an all-time high of $2.27 per pound. However, in the current setup, the weather woes have come at a time when the market is already tight. As economies recover strongly from the COVID-19 pandemic, demand for fabric, and cotton by extension, has increased.  In particular, there is an increase in demand from China, which is a leading importer of the agricultural commodity.

Crude oil prices

Cotton price is further finding support in the soaring crude oil prices. Synthetic fibres like polyester are a common alternative to natural options like cotton. Seeing that synthetic fibres are a petroleum byproduct, higher oil prices often spill over to these raw materials.

Earlier in March, Brent futures- the benchmark for global oil – surged to its highest level since 2008 at $138.10. While it has since eased from those highs, it has held steady above the critical level of $100. As at the time of writing, it was at $116.41; up from $77.16 at the beginning of the year.

At the point when crude oil price was at a 14-year high, cotton price was at a two-month low of $1.1552 per pound. Since then, it has risen to $1.4156 as at the time of writing. At its current level, it is at its highest level since June 2011.

Notably, soaring crude oil prices have also impacted the cost of pesticides, which are largely used in cotton farms. This comes at a time when fertilizer prices are at a record high. Russia is the leading exporter of nitrogenous fertilizers and second-largest in potassium and phosphorous plant nutrients. Subsequently, the ongoing Russia-Ukraine crisis has pushed fertilizer prices up by 30% since the beginning of the year. At its current level, the nutrients are costlier than during the food crisis in 2008.