Cotton Prices Continue To Soar


W
ith the current state of the cotton market, it would not be beyond the bounds of
believability to see senior spinning executives standing by the roadside holding up signs that say,
“Will work for cotton.”

Demand for cotton has skyrocketed throughout 2010, particularly in the last several months.
Correspondingly, prices for raw cotton and cotton yarn have gone through the roof as well. On Jan.
18, 2010, quotations for the base quality of cotton averaged 67.66 cents per pound in the seven
designated markets measured by the U.S. Department of Agriculture. On October 15, the average had
increased to $1.06.52, the highest price recorded since May 26, 1995, when the average was $1.11.53
cents per pound.

The rapid increase in raw material cost has resulted in significant — but not proportionate
— increases in wholesale prices of cotton yarn. In January 2010, a ballpark price for 18/1
ring-spun carded cotton was around $1.50 per pound. By mid-October, that same yarn was selling
anywhere from $1.85 to $2.

“We’re lucky, in that we’ve bought the cotton we need to fill our orders,” said one spinner.
“But if you don’t have it in-house or on the way, it is hard to find. I understand that the crop
is, basically, completely sold, and there is not any availability. At one point, there were even
some offerings of the 2011 crop, but it’s been taken off the market.”

Said a yarn broker: “As we got into the summer months, the cotton business was already
strong. Many apparel manufacturers started looking to restock their inventory as the economic
recovery continued. With the continued strength of the textile industry and some concerns about the
availability of fiber, it created a very strong demand for cotton. I think some mills became
concerned about availability of cotton but weren’t really sure the long-term demand would be there.
They expected business to weaken as we headed into the fall months, and they took on some business
that, in the end, they did not have the capacity to meet. As a result, the cotton they had
purchased as a hedge against future production needs was used to fill orders and they were left
with a shortage of raw materials. That, in turn, triggered some panic buying, which further served
to drive prices up.”

At this point, cotton spinners are concerned with two issues, said one southern specialty
spinner. “Those who don’t have cotton are worried about how they’ll get it and how much they’ll pay
for it,” he said. “And those who have already bought their cotton based on current demand
projections and prices are worried that consumer spending will slow, prices will drop and they will
be stuck with a lot of high-dollar raw material.”


Opportunity For Synthetics?


With increased cotton prices and the resulting cost increases for cotton fabric and apparel
throughout the supply chain, synthetic yarn manufacturers were looking forward to a significant
upsurge in business as retailers sought less expensive alternatives for their winter and spring
fashions. However, these manufacturers have been hit with substantial raw material price increases
as well.

“It started with acrylic in the first part of the year,” said one spinner. “Acrylonitrile
was in very short supply and was actually on allocation for much of the year. We were concerned at
the beginning of this year not so much about prices going up, but about whether we were even going
to be able to get product. This happened about six months before the current cotton situation, but
it almost exactly mirrors what has happened to cotton. Fortunately, it has leveled off.”

He continued: “As oil prices have gone up and as retailers look at finding alternates for
cotton, we are now seeing polyester prices begin to tick up significantly. So, we are hoping we
will be able to realize some significant gains in business from those who are turning away from
cotton. But, at the same time, we’re concerned that steady increases in our prices will work to
negate some of the advantage.”

October 19, 2010

SHARE