Dollar cotton—the stuff dreams are woven of, the Holy Grail of both hard scrabble farms and plantation-sized enterprises, the benchmark that lures typically cautious farmers to wait a few more days to price their crops and, more often than not, catches them in a downward spiral that moves down a lot faster than it moved up.

Dollar cotton—the bones of novel plots that pit hard-working farmers against the treachery of speculators. If it ever reaches a dollar a pound, stories go,  dirt poor tenant farmers can buy their way out of poverty, send their kids to school, buy land, enter the realm of respectability, and sneer at their former landlords. Moving on up.

Dollar cotton became a reality earlier this week for the first time since 1995, according to a Bloomberg report that put December futures at $1.015 a pound.

Other reports indicate potential for prices to reach $1.25 before the run is done.

Supplies tight

The jump comes on news that supplies are falling rapidly; mills need cotton now and are concerned about supplies.

“I don’t know exactly what to think about it,” said Jeff Posey, a Roby, Texas, farmer and the 2010 Southwest High Cotton Award winner. “I’ve never sold dollar cotton before.”

He said he’s not likely to this year either but he’s excited about the opportunity to sell for a profit. “We market through a pool, as do most of the farmers in the area, so we might not see $1 a pound.”

But Posey said the pool had done a pretty good job of capturing some fairly good prices. “So we may get some pretty good money out of the increase.”

He said he wouldn’t complain about 75 cents a pound.

He also wonders about next year. “Will we see more  acres in cotton in 2011? Corn and wheat markets are also up.”

Posey said his crop looks good as he gets ready to harvest. “I’ll have some very good dryland cotton. And with prices above $1 a pound, it’s really exciting.”

"The opportunity that has been presented to growers this year is extraordinary," says Plains Cotton Growers Executive Vice President Steve Verett. "It is rare to see cotton prices at the levels we have seen over the past few months, much less to see them at the levels reached earlier this week. The fact that these prices are being supported by real market fundamentals is the best news of all and will hopefully extend beyond the 2010 harvest season." 

“Take your money!” says O.A. Cleveland, Professor Emeritus, Mississippi State University.

“Cotton is at near historical highs and the market is saying give me some cotton,” Cleveland said. “It makes no sense to wait and look for the peak. Price and sell everything now. If a farmer feels like he just has to sell some cotton at the peak, hold five or ten bales, or just one bale. But for now, take the money. We never know what the peak is until it’s come and gone.”

Cleveland said the current price uptick comes from several factors, chiefly a “very strong tightness in both U.S. and world cotton supplies.” That tightness, he said, is augmented by “stronger demand than we anticipated out of China.”

China crop smaller

China’s cotton crop is smaller than expected because of weather. Weather also hurt Pakistan cotton production as floods ravaged much of their cotton acreage.

“And there is still very strong concern with India’s government embargo.” That combination of factors, but primarily the tight U.S. and world stocks, Cleveland said, has pushed prices into the rarified air of $1 a pound.

Fund traders, because of the U.S. and world economies, are also back in the commodity markets. “Most commodities are up,” he said. “We see little resistance in the market. So we can just sit back and see what happens.”

He said if all the factors play out, cotton could hit $1.25. But farmers should take action now, he said, while they have profit opportunities.

Dollar cotton may offer a tempting target, but the old adage that no one ever went broke making a profit remains gospel.