Cotton’s Short Squeeze Has Prices Soaring Back to Decade Highs

(Bloomberg) -- Cotton futures surged back to the highest level in more than a decade, leaving traders with short positions struggling to secure supplies.

The fiber has jumped almost 50% in 2021 on expectations for a second straight world deficit, pulled by soaring demand, especially for apparel. 

The rally is boosting clothing costs and is part of a trend hitting budgets at home. U.S. consumer prices rose last month at the fastest annual pace in three decades, according to Labor Department data.

Supplies are so tight, there’s a short squeeze in play when it comes to the nearby December futures contract, which ought to fuel even more upside for prices. Some commercial traders are holding a large sold positions that must be closed by buying futures, said O.A. Cleveland, a consultant and agricultural economics professor emeritus at Mississippi State University. 

March futures rose as much as 1.4% to $1.1683 a pound in New York, the highest for a most active contract since June 2011. The gains were reined in later in the session by a rising dollar, which erodes the appeal of commodities priced in the greenback. 

The fiber has been hard to ship amid transportation snarls. At the same time, farmers are facing increasing costs, including labor, fuel and fertilizer. 

Certified cotton stockpiles at depots monitored by ICE Futures U.S. fell Wednesday by 6.2%, extending this year’s slide to the lowest in more than a year. Logistical issues and a late U.S. crop are hindering the ICE inventory from rebuilding, said Louis Rose, director of research at Rose Commodity Group in Tennessee.

Meanwhile, there are signs of bigger supplies may be coming next year, with U.S. farmers expected to plant significantly more acres. Other countries are already responding to the higher prices and upping output.  

Even as the U.S. lowered its estimate for world stockpiles, inventory is ample, said Jon Devine, supply-chain economist for North Carolina-based researcher Cotton Inc., said in a note. 

“Global supply estimates do not suggest a shortage, and a surplus of production could be expected” next season, he said.

In other soft commodities, arabica coffee and raw sugar declined, and cocoa gained in New York.

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