Cotton ETN rises as drought decimates crops

Cotton prices and a related exchange-traded note have surged over the past month as drought conditions decimate crops, with the latest harvest expected to be the weakest in 13 years.

The iPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL) was 3.0% higher on Tuesday and jumped 27.7% over the past month. Meanwhile, ICE No. 2 cotton futures rose 2.9% to $1.1685 a pound.

According to the latest crop production report from the United States Department of Agriculture, the cotton harvest in the United States will reach about 12.57 million bales, the smallest since 2009, Texas, the largest state cotton producer, representing the deficit of almost 5 million bales. in production year after year.

Texas cotton crops could reach about 2.9 million bales, down from 7.7 million in 2021, with conditions in the state so severe that growers could give up two out of three acres planted in the spring. According to the USDA, abandonment rates in the Southwest were “historically high.” Overall, US production was down 28%, or 12.57 million bales, from 17.52 million bales in 2021.

US agricultural market watchers have warned that the ongoing drought in the United States could cause farmers to give up 40% of the 12.5 million acres of farmland, with cotton crops at their smallest acreage since the Reconstruction era, 1868, reported the Wall Street Journal.

Parts of the United States are suffering from the hottest weather on record, which has dried up agricultural fields, forcing farmers to give up as it is no longer economically feasible to maintain some farmland.

For example, farmer Brent Nelson in Texas begging only uses 280 of his 5,000 acres of land. He noted that his fields had only received about 3 inches of rain since last August, compared to an average of about 17 to 18 inches of rain per year.

As a result, more and more farmers are abandoning crops and relying on federal crop insurance to support themselves.

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