US drought drives up cotton prices

A prolonged drought in the United States has affected the country's cotton production.

With the central United States still suffering from a prolonged drought, cotton prices have risen to their highest level in more than a decade on Monday.

Cotton prices reached $1.3171 per pound on the US futures contract, marking the highest price since July 2011, with many comparing the current weather conditions to the worst drought ever experienced by US cotton producers, which happened in 2011. 

Back then, prices rose as high as $2.27 per pound, with rainfall being exceptionally low in the northwest part of Texas, which produces close to 40% of all US cotton production. There is still uncertainty in the market about the size of the year's crop since cotton is planted from March to June. 

In addition, there's been an increase in demand from China, the world's largest cotton producer and importer. While high cotton prices were expected to lead to a sharp increase in US acreage, the rising cost of pesticides driven by rising petroleum prices is expected to limit that growth.

Added to that is a wave of speculative buying, driven by accelerating prices.