Cotton rally looms on China, India demand

Cotton, the least profitable crop for US 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 anticipate prices will rise, and the $1 billion Schroders Agriculture Fund expects cotton may more than double during the rally. Growers in the US, the world's biggest exporter of the fibre, 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 per cent last year, more than double the returns of commodity indexes. Cotton may gain 66 per cent to $1 a pound in 2008 from 60.30 cents now, Jansen said. The commodity's last increase of that magnitude was between 2001 and 2003.

Profits will suffer for Winston-Salem, North Carolina-based Hanesbrands Inc, 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 per cent, 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 US crop after corn.

The appeal of cotton has waned for US 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 per cent. World cotton output will fall 2.3 per cent to 25.4 million tonnes in the year that started August 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 per cent to 27 million tonnes, said the group.