Cotton prices poised for an advance, experts say

CHICAGO -- Cotton, the least profitable crop for U.S. farmers, is poised for its biggest advance in four years on demand for T-shirts and blue jeans from China and India.

Speculators from Jim Rogers to Barclays Plc anticipate prices will rise, and the $1 billion Schroders Agriculture Fund expects cotton may more than double during the rally. Growers in the U.S., the world's biggest exporter of the fiber, may plant the smallest crop in two decades to produce higher-priced wheat, corn and soybeans.

"Cotton is one of the cheapest commodities around," said Roland Jansen, whose $129 million Mother Earth Resources fund in Liechtenstein gained 28 percent last year, more than double the returns of commodity indexes. Cotton may gain 66 percent to $1 a pound in 2008 from 60.25 cents on Sept. 7, Jansen said. The commodity's last increase of that magnitude was between 2001 and 2003.

Profits will suffer for Winston-Salem, N.C.-based Hanesbrands, known for the Wonderbra, and Levi Strauss & Co. of San Francisco, the closely held maker of blue jeans and Dockers khakis, if cotton rises that fast. Cotton has been the worst-performing commodity during the past three years, hurting farmers from Mississippi to West Africa to Turkmenistan.

A $1 million purchase of cotton futures today would return $660,000, or 66 percent, should prices reach Jansen's forecast. The Standard & Poor's 500 Index last rose that much during a 52-week period ended April 1936, when cotton was the second-largest U.S. crop after corn. Cotton for December delivery on the New York Board of Trade rose 0.75 cent, or 1.2 percent, to 61 cents a pound.

"I'm more optimistic on cotton than on most things because cotton is so far, maybe 50 percent, below its all-time high," said Rogers, a former partner of George Soros, who wrote "Hot Commodities" and predicted the start of the raw-materials rally in 1999.

The appeal of cotton has waned for U.S. farmers after wheat more than doubled in the past year to a record, corn jumped to a 10- year high in February and soybeans gained 65 percent. The commodity, dubbed "king cotton" in the U.S. because of its economic importance since before the Civil War in 1861, has appreciated only 13 percent in the past year and is the cheapest ever relative to wheat.

World cotton output will fall 2.3 percent to 25.4 million tons in the year that started Aug. 1, which will lead to the largest annual deficit in five years, the Washington-based International Cotton Advisory Committee forecasts. Consumption will rise 2.7 percent to 27 million tons, said the group, which represents 44 governments.

Per-capita use of cotton in China rose 26 percent from 2000 to 2005 to 6.4 pounds, the ICAC estimates. In the U.S., where demand growth was 1 percent last year, consumption was about 38 pounds per capita, said Cotton Inc., an industry-funded U.S. trade group in Cary, N.C.

While American consumers own nine pairs of jeans on average, demand is growing faster in Asia, where the average Chinese citizen has four pairs and Indians have two, Cotton Inc. estimates, based on survey results.