Largest Producers and Consumer Cotton Commodity Supply

China is the largest cotton commodities consumer and produsers, the first of the three strikes to hit global cotton supplies struck China, the largest producer and largest consumer of cotton. Bad weather there damaged the cotton crop, which prompted Beijing to ramp up imports in order to feed the country's textile factories.

"From the buying pattern we have seen out of China, it would appear that collectively, they may not have seen this rally coming," L.O.G.I.C. Advisors' Lawson told The FT.

This extra demand prompted India, the world's No. 2 exporter, to cap exports. India's cotton crop was also damaged during the heavy monsoon rains. India's leaders have stated that they will put an extremely high level of tariffs on exports above 2 million bales.

Pakistan rounds out this trifecta of cotton-crop calamities. A large cotton exporter in its own right, Pakistan's cotton crop has been badly damaged by the flooding that has seriously damaged that country's expected harvest.

Demand for cotton was already on the upswing anyway. That means that these shortages are expected to have some serious economic implications around the world. The supply shortfalls have touched off a bidding war in the commodity-trading pits, which will affect anyone who buys clothes in 2011.

While farmers will attempt to plant more cotton in the New Year, that's still a growing season away, and won't be enough to slow the price advance in the cotton market anytime soon.

Cotton has such a long "lead time" - one of the longest of any commodity, in fact - here's the reality about prices. From the time new cotton crops are planted, to the time the mature cotton is harvested, processed and sent to a textile factory for production into a T-shirt that you can buy at your local retailer, you're basically talking at least 18 months.

For an investor, that means that there's still plenty of time to profit from the cotton shortfall. This gives us a commodity that is in a prolonged, upward trend - and not a rocket ship whose bullish price moves are likely to end in a spectacular (and risky) blow-off.

What's more, if the 2011 crop is also not a bumper one, we can expect that prices will continue their upward move even longer.

Finally, while cotton is also subject to a major new economic slow down in the economy, like 2008. Cotton has enough of a supply imbalance this year, to absorb a drop in near-term demand.