Insurance

Cotton commodity prices slump as insurance price rises

LUBBOCK, Texas (KCBD) – After a tough season with extreme heat and drought, cotton commodity prices have fallen.

On May 17, prices were at $1.20 a pound or higher, on July 15 they were down to 90 cents. A professor of agriculture and applied economics at Texas Tech says it could be a kick-start for fiber growers when they’re already down.

“People weren’t expecting such a price move,” Hudson said. “We knew it was going to go down, but we didn’t expect it to be 40 cents.”

Hudson says it’s not because of the supply and demand issue.

“With inflation, everyone expected the Fed to start raising interest rates. So when you raise interest rates, that drives down commodity prices, so what the hedge funds were doing is they were positioning themselves ahead of a big move or what they thought was a big move in the commodity markets,” Hudson said.

With drought and extreme heat, many farmers could not get a good body. Hudson says the insurance saved them.

“Those who lost their crop, it’s insured and it was actually insured at a higher price than today,” Hudson said.

Those who have not claimed insurance face a significant loss. Along with falling prices, job opportunities are slim.

“These farmers are not harvesting a crop, so the people who are employed in harvesting, ginning, warehousing – all of those aspects, a lot less everywhere, a lot less jobs, a lot less economic activity,” said Hudson said.

This results in a drop in economic activity in the hub city as a whole.

“It is going to be particularly acute this time, both because of the scale of the losses we are suffering, 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 expects fiber prices to rise over the long term.

“But it takes longer, there’s resistance with people waiting to capture profit as these prices go up, they’re selling and so that drives that price down,” Hudson said.

Hudson says both sides of the market are struggling to find a reasonable price during this supply and demand issue, but commodity prices are slowly rising, which Hudson says is a step in the right direction.

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