Cotton, the least profitable crop for US farmers, is poised for its biggest advance in four years on demand for T-shirts and blue jeans from China and India.

Speculators from Jim Rogers to Barclays Plc. anticipate prices will rise, and the $1 billion (Rs4,060 crore ) Schroders Agriculture Fund expects cotton may more than double during the rally. Growers in the US, the world’s biggest exporter of the fibre, may plant the smallest crop in two decades to produce higher-priced wheat, corn and soybeans.

“Cotton is one of the cheapest commodities around," said Roland Jansen, whose $129 million Mother Earth Resources fund in Liechtenstein gained 28% last year, more than double the returns of commodity indexes. Cotton may gain 66% to $1 a pound in 2008 from 60.25 cents now, Jansen said. The commodity’s last increase of that magnitude was between 2001 and 2003.

Profits will suffer for Winston-Salem, North Carolina-based Hanesbrands Inc., known for the Wonderbra, and Levi Strauss & Co. of San Francisco, the closely held maker of blue jeans and Dockers khakis, if cotton rises that fast. Cotton has been the worst-performing commodity during the past three years, hurting farmers from Mississippi to West Africa to Turkmenistan.

A $1 million purchase of cotton futures on 10 September would return $660,000, or 66%, should prices reach Jansen’s forecast.

The Standard & Poor’s 500 Index last rose that much during a 52-week period ended April 1936, when cotton was the second-largest US crop after corn. Cotton for December delivery closed at 60.25 cents a pound 7 September on the New York Board of Trade.

Cotton bull

“I’m more optimistic on cotton than on most things because cotton is so far, maybe 50%, below its all-time high," said Rogers, a former partner of George Soros, who wrote “Hot Commodities" and predicted the start of the raw materials rally in 1999.

The appeal of cotton has waned for the US farmers after wheat more than doubled in the past year to a record, corn jumped to a 10-year high in February, and soybeans gained 65%. The commodity, dubbed “king cotton" in the US because of its economic importance since before the Civil War in 1861, has appreciated only 13% in the past year and is the cheapest ever relative to wheat.

World cotton output will fall 2.3% to 25.4 million tonnes (mt) in the year that started 1 August, which will lead to the largest annual deficit in five years, the Washington-based International Cotton Advisory Committee forecasts. Consumption will rise 2.7% to 27 mt, said the group, which represents 44 governments.

China jean sales

Per capita use of cotton in China rose 26% from 2000 to 2005 to £6.4, the ICAC estimates. In the US, where demand growth was 1% last year, consumption was about £38 pounds per capita, said Cotton Inc., an industry-funded US trade group in Cary, North Carolina.

“Consumption is still breaking records year after year," and has done so since the 1998-1999 season, ICAC statistician Armelle Gruere said. Rising incomes in China and India, the world’s fastest-growing major economies, are spurring increased demand for clothing.

While American consumers own nine pairs of jeans on average, demand is growing faster in Asia, where the average Chinese citizen has four pairs and Indians have two, Cotton Inc. estimates.

Rising sales of clothing in China and India, the world’s biggest garment exporters, have bolstered demand for cotton, said Sudakshina Unnikrishnan, a commodities analyst at Barclays Capital in London.

Curbs to end

“It’s a very circular trade," said Pietra Rivoli, author of “The Travels of a T-Shirt in the Global Economy" and a professor of international business at Georgetown University in Washington. “The US continues to be the biggest exporter of cotton, but China is the largest textile and apparel producer. As trade barriers come down, you have higher demand because clothing is less expensive."

The European Union is set to remove curbs on textile imports from China at the end of 2007. The US will do the same a year later.

“China’s cotton imports will rise" this year, said Mark Allen, managing director of Noble Cotton, a division of Hong Kong-based Noble Group Ltd., a commodity trader and supplier.

China’s retail sales of textile and apparel goods increased 25% in the first half of this year from 2006, outpacing a gain in total retail sales of 15.4%, according to Weiqiao Textile Co., China’s largest cotton textile producer.

“The only big downside risk is any sort of movement in the wider macro economy, because cotton tends to be very sensitive to this," said Barclays’s Unnikrishnan. “Otherwise, the supply and demand picture remains very positive."

Fewest acres in decades

While Chinese textile manufacturers buy more cotton, farmers in the US are planting less.

If cotton futures for delivery in December 2008 stay below 70 cents a pound, the US farmers may cut sowings by 2 million acres, to about 9 million acres, the lowest since 1983, said John Robinson, an economist and associate professor for Texas A&M University in College Station. Frank Rogers, who farms 4,500 acres in Bennettsville, South Carolina, said he will cut his cotton planting by 18% next year and sow more corn, soybeans and wheat.

The cost of fertilizers, herbicides, seeds and farm equipment runs to about $400 per acre for cotton, compared with $225 for corn, $170 for soybeans and $150 for wheat, Rogers said.

“We are being pushed into these crops," he said.

Farmer profits

In Georgia, the third-largest US cotton-growing state, the fibre is the least profitable row crop, according to a study by Donald Shurley, an economist at the University of Georgia at Athens. Cotton will earn $40 an acre, compared with $124 for corn, $72 for soybeans and $94 for a dual crop of wheat and soybeans, Shurley said.

Schroders, the $1 billion London-based commodity fund, has 2.9% of its assets invested in cotton and may buy more.

“Cotton has gone from being a commodity that wasn’t really on our scale to one of the more important ones," said Matthew Michael, commodities product manager at Schroders. “When looking at this kind of bull market, we can see prices go up two to three times quite easily."

Feiwen Rong in Singapore, William Bi in Beijing, Thomas Kutty Abraham in Mumbai and Jeff Wilson in Chicago contributed to this story.