While cotton saw its highest weekly price average in more than a decade just a few months ago, the commodity more recently faced one of its steepest price drops in about 40 years, with a bleak outlook for the coming harvest season.
In early May, cotton reached a weekly price average of 145.01 cents per pound -- topping out at 158.02 cents per pound on May 4, according to market data with the US Department of Agriculture. This is the highest weekly average the commodity has seen since June 2011, when it reached 150.43 cents per pounds.
Since the May 16 settlement of 132.96 cents per pound, the December contract has fallen to 96.21 cents per pound, dropping by 37 cents in just over two months. Earlier in July, the December contract fell to its lowest in more than a year of about 84 cents per pound -- seeing one of the steepest price drops over the last 40 years within a two-month duration.
"Futures settlement prices" place an estimated value on the commodity's worth months ahead of the actual date and official sale, allowing producers to "lock in" on prices that are predetermined by the market before harvest ever begins.
In West Texas, the majority cotton futures contracts -- the sale agreement between a buyer and producer -- fall in December.
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The commodity closed at $103.13 per pound on July 29, while the October settlement price ended the week at 102.37 cents -- up from 99.60 cents last week -- and the December settlement price closed at 96.21 cents per pound.
Combining the fairly low December prices with increased input costs due to inflation and less-than-normal production due to drought, many worry that this year's harvesting season will severely impact farmers in terms of net revenue.
Plains Cotton Growers Director of Policy Analysis and Research Shawn Wade said he is hopeful that this year's limited crop can bolster prices through supply and demand.
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"It's been a challenging year for cotton," Wade said. "We're expecting to see some more speculative money from outside investors -- I guess you could say -- that participate in the cotton market. Activity is very important because it can provide liquidity to the market, and they have the capability -- as we've seen when they are trying to position themselves in terms of recession or economic activity -- to benefit those markets.
"Hopefully, between that and as we get closer to harvest and see what the 2022 crop really looks like, maybe we can see some of that price that we've lost over the last few weeks," he added.
This article originally appeared on Lubbock Avalanche-Journal: Cotton price tumbles, seeing one of steepest drops in 40 years