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By MoneyWeek Magazine
Cotton is becoming an increasingly hot commodity. Global demand is expected to exceed supply by 1.6 million tons this year, the biggest shortfall in five years.
Moreover, prices for cotton futures are set to jump 66%, from 60 cents to $1 a pound, according to Roland Jansen of the Mother Earth Fund.
Driven by rising incomes, per-capita cotton consumption in Asia rose 26% from 2000 to 2005, and has reached 6.4 pounds per person. Though far below the U.S. market's average of 36 pounds, Asia's soaring demand for cotton (as is the case with other commodities) is driving up global prices.
But while world consumption of cotton will rise 2.7 % (27 million tons total), global output will fall 2.3% (25.4 million tons total), according to the International Cotton Advisory Committee. And according to the United States Department of Agriculture, "the U.S. share of global production is projected to fall to 15%, compared with the 5-year average of 19%."
That's because cotton is costly for farmers to produce, or viewed in another way, isn't as profitable as other crops.
University of Georgia economist Donald Shurley told Bloomberg News that cotton earns an average of $40 an acre, compared with $124 for corn, $72 for soybeans and $94 for a dual crop of wheat and soybeans.