How do U.S. cotton subsidies affect cotton prices in the international market?
A subsidy to a cotton grower is only effective when the incentive in question (the subsidy) is valued more as a last resort than any other avenue available to a cotton grower. So, international prices are not going to be depressed. The Corn, Soybeans, and Sugar (due to Ethanol demand) alternative outweigh any proposed government subsidy. Therefore Cotton acreage will be depressed due to it being torn out of the earth in favor of the previously mentioned commodities. But, that doesn’t mean Cotton Call Options are the best bet either (I like Big Brown in the Derby by the way). The demand for Corn and Soy far outweigh that of Cotton as far as Futures contracts are concerned, so there’s that. Of course, Cotton demand come September can’t be discounted. But the potential for future International #11 Sugar contracts to erupt suddenly and unpredictably always exists. Government subsidys won’t come into play until September when the crop harvests come in.
