If Hollywood is looking for a new idea for a disaster movie – one of the type where Catastrophe gets the world into a death grip only to expire first - maybe it should try cotton. The market looked to have all the makings of a calamity when the global recession struck. Yet through a mixture of luck and judgment it has pulled back from the abyss.

Sure, prices haven't been great. They are, at 50 cents a pound or so, down roughly a half in the past year. That's disappointing so soon after a poor year in 2004 and an even worse one in 2001, when a record US crop also prompted a halving in prices, this time to 30 cents a pound.

But it could have been so much worse. For most markets, investors need to search no further back than the Wall Street crash for worst-case scenarios. For cotton, they have to look back for ever.

Super-glut

The 10.5% fall in global consumption forecast this year is the sector's worst since the US began keeping records in 1920. That could have left the world with a super-glut of unused crop. If production had stayed stable this year, world cotton stocks could in theory have topped 16m tonnes, equivalent to nearly 70% of this year's consumption. 

That's some stockpile. Even during the 2001-02 bear run, the stocks-to-use ratio came in below 60%. 

But this time output has slumped too. What's saved the cotton market from calamity is a cut in production of 10.1%, nearly in line with the demand fall.

Bolls to cobs

Cotton bulls have a lot to thank farmers for. One reason for shrinking production is a massive drop in planting at the first scent of economic fear. America's cotton acreage has dropped by one quarter to its lowest since 1983, according to official estimates, and has been near-eradicated from its western reaches, where red tomatoes flourish in place of white bolls.

Egyptian growers have been ahead of the curve too, halving their cotton plantings and growing corn for animal feed instead.

But weather has also played its part, keeping a lid on Australian production and depressing yields in many lower-ranking producers, such as Uzbekistan and Colombia. It is farmers in these countries who look the biggest losers this season, receiving lower prices for smaller crops.

Investors should remember unlucky Uzbeks, as well as prescient Egyptians, before cursing their own losses.