WSJ: Cotton Farmers Jump on Rising Crop Prices
—The amount of land in the U.S. dedicated to planting cotton this spring is expected to surge 14%, according to a closely watched forecaster.Farmers are making an "Allocative Efficiency" decision to produce more cotton than---(fill in the blank). Assuming there is not that amount of idle acerage, to produce more cotton is going to necessarily mean less of something else. This is illustrated in the graph below.
The National Cotton Council of America, an industry group, said on Saturday it estimates farmers will plant 12.5 million acres of cotton. As a result, the fall harvest is pegged at 19.2 million bales, an increase of 900,000 from the 2010 harvest. The amount of cotton in one bale is enough for about 1,200 T-shirts, according to the council.
The bundle of Cotton and Food produced is going to move from Cotton* and Food* to Cotton 1 and Food 1. The opportunity cost for the farmer is somewhat minimal---the land, equipment and know-how to produce cotton is about the same as corn, wheat, soybean, etc. They are looking for the most revenue per acre and cotton is the choice commodity at this time.
Where the real opportunity cost is incurred in the domestic and international food supply. We can't eat cotton, so domestic food production will be impacted in some negative way...Won't it??
I learned, from your website, that the United States is largely invested in the cotton industry with more than 3 billion dollars in subsidies. The article cited above stated that cotton planting in the spring is expected to surge by 14%. I wonder if the advantageous revenue per acre with cotton is because cotton is largely imported by other countries of the world because of the United States subsidies. Also, if this is the case, would the demand for other products, such as corn, wheat, or soybeans, increase if the United States made the allocative efficiency decision to put their subsidies into these commodities.
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