Uncontrolled Fires Drive Cotton Prices Above $1

Impact on Cotton Market

Uncontrolled fires in the Texas Panhandle are causing a surge in cotton prices, pushing them above $1 per pound for the first time in almost a year and a half. The most-active cotton contract on the Intercontinental Exchange saw a 2.3% increase to hit $1.011 a pound on Wednesday. This marks the first time prices surpassed $1 a pound since September 2022.

Challenges Faced by Farmers

The fires raging in Texas's northern counties are expected to deliver another blow to local farmers who have been struggling with harsh drought conditions in recent years, severely impacting their harvests. Donna Hughes, an analyst with StoneX Group, expressed concerns stating, "We have had two to three bad years on cotton."

Extent of Damage

The largest fire, known as the Smokehouse Creek fire, has ravaged an estimated 500,000 acres of land, as reported by the Texas A&M Forest Service. Despite decreased winds moderating the severity of the blaze, it remains uncontained according to the latest update provided by the service.

Significance of Texas Cotton Production

Texas holds the title for producing the most cotton among all U.S. states, with approximately 17% of the fiber originating from the Northern High Plains where the fires are currently taking place, according to data from the Agriculture Department.

Cotton Prices Surge in 2024

Cotton prices have seen a significant increase in 2024, soaring approximately 25% year to date. This surge is fueled by fund traders ramping up their net long position in the commodity. Anticipating a boost in demand for U.S. cotton, traders are optimistic due to the easing interest rates in the U.S. and China's injection of stimulus into its economy. According to the Commodity Futures Trading Commission's report as of Feb. 20, funds held a net long of just over 86,000 contracts.

Favorable Rainfall Improves Soil Moisture

Recent rainfall has led to improved soil moisture in Northern Texas, as indicated by data from the U.S. Drought Monitor. This positive development comes after only 7.1 million acres of cotton were harvested last year, marking the lowest harvested acreage since 1868 as reported by the USDA.

Positive Outlook for U.S. Cotton Production

The USDA has forecasted an increase in U.S. cotton output for the upcoming 2024-25 crop season, with production expected to surge by 29% to reach 16 million bales. However, this uptick in production coincides with a rise in demand overseas.

"This is going to be an interesting story for cotton," noted Chicago-based commodity broker Peter Mooses. "From here, we'll have to monitor the progress in Texas and hope the weather doesn't add to the issue."