Cotton commodity prices plummet as insurance price rises
LUBBOCK, Texas (KCBD) - After a rough season with the extreme heat and drought, cotton commodity prices have plummeted.
On May 17, prices were at $1.20 a pound or more, by July 15, it was down to 90 cents. An agricultural and applied economics professor at Texas Tech says this could be a kick to fiber producers when they’re already down.
“People were not anticipating that big of a price move,” Hudson said. “We knew it was gonna come down, just was not anticipating it to be 40 cents.”
Hudson says this isn’t because of the supply and demand issue.
“With the inflation, everybody anticipated the FED to start raising interest rates. So, when you raise interest rates what that does is it lowers the commodity prices so, what the hedge funds were doing is they were positioning themselves ahead of a big move in or what they thought would be a big move in commodity markets,” Hudson said.
With drought and extreme heat, many farmers couldn’t get a good corp. Hudson says insurance saved them.
“The ones that have lost their crop, that’s insured and it was actually insured at a price higher than it is today,” Hudson said.
Those who didn’t claim insurance are facing a significant loss. On top of prices being down, job opportunities are slim.
“Those farmers aren’t harvesting a crop so, the people that are employed in harvesting, ginning, warehousing - all of those aspects of it, much less throughout, much less employment, much less economic activity,” Hudson said.
Which is resulting in less economic activity in the Hub City overall.
“It’s going to be particularly acute this time, both because of the size of the losses we’re experiencing, but also because of the inflationary pressures on the rest of the economy. Less income in the community means less ability to put gas in your tank,” Hudson said.
Hudson says he does expect fiber prices to rise in the long run.
“But that’s taking longer, there’s resistance with people waiting to capture profits as those prices rise, they sell and so that brings that price back down,” Hudson said.
Hudson says both sides of the market are struggling to find a reasonable price during this supply and demand issue, but the commodity price is slowly increasing, which Hudson says is a step in the right direction.
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