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Cotton Follows Wider Commodity Trend

Cotton Follows Wider Commodity Trend

As part of Sky News' focus on commodities this week, today we are looking at cotton. Here is what you need to know:

:: Why is the price of cotton falling?

Unlike cocoa, which is seeing its price rocket due to adverse weather conditions in West Africa, the price of cotton has fallen due to better weather in the main US cultivation areas.

Cotton had climbed to a high of 68 cents per pound in late June after heavy rainfall hampered sowing in the US. Then the price fell to 61 cents per pound on 12 August - its lowest level since mid-March.

Cotton is currently trading at just under 63 cents per pound.

Price levels witnessed this year have been hovering around five-year lows, largely on the back of subdued demand and growing stockpiles.

:: Apart from the US, where else is cotton grown?

The top five cotton growing countries are India, China, US, Pakistan and Brazil.

However, the US is the biggest exporter of cotton with Texas, Georgia and Mississippi producing well over half of all US cotton.

:: How important is cotton as a commodity?

The commodity trader Noble DraKoln puts it like this: "No other commodity has created more controversy, built more nations, enriched more lives and caused more suffering."

The suffering and controversy it alludes to is that caused by the slave trade, and the riches that were created by the British Empire via the Dutch East India Company in the 18th century.

:: What's China's role in the future of cotton?

At the turn of the millennium, China was still a net exporter of cotton.

A mere eight years later it had become the largest net importer of cotton in the world. This was despite also holding the accolade as the world's biggest producer, until it was recently overtaken by India.

Although Chinese demand powers on, a recent report by HSBC suggests that the world's second largest economy may choose not to grow cotton in order to release land and water to grow other edible crops instead.

If such a decision was taken it is very likely that the price of cotton would rise.

However, the Chinese government holds massive cotton stockpiles which it could use to suppress any pernicious price prices.

Some estimates put China's state stockpile at close to 10 million tonnes - equivalent to 40% of global stocks.

:: Could global water shortages have an impact?

On Thursday, as part of Sky News' commodity week, we shone the spotlight on water trading and how its popularity was growing amid global water shortages.

Cotton's intensive need for water regularly thrusts the industry to the forefront of the debate over water rationing and drought management.

In 2006, droughts throughout Texas, the biggest cotton-producing US state, forced cotton farmers to ration their water use. The fallout from this rationing was smaller-than-expected crops yields, which prompted higher prices.

While Uzbekistan, which was once a top-five cotton producing country, has seen entire areas turned to desert as water was diverted to feed cotton crops.