Cotton Prices Continue To Fall
Jim Phillips, Yarn Market Editor
Despite the continued growth of the industry in recent years, trouble spots still arise from time to time. Of particular concern to spinners at the moment is the precipitous drop in cotton prices over the past eight weeks.
In late July, cotton prices fell to their lowest in nearly five years, driven in large part by the revised and more pessimistic economic growth forecast by the International Money Fund.
Cotton on the ICE Futures U.S. exchange fell to 63.89 cents a pound in mid-August, the lowest settlement since October 2009.
“We are keeping a close watch on this to see where it goes,” said one spinner. “The fall in cotton prices can be attributed to the global economic forecast and the fact that there is more cotton on the market than previously anticipated. Already, folks are saying that cotton prices for next year are likely to stay low because of increased production. The key, of course, is what is going to happen to consumer demand. Will folks become cautious again and stop discretionary spending, or will they continue to spend as they have for the better part of this year? That’s the important question.”
Spot cotton quotations for the base quality of cotton (color 41, leaf 4, staple 34, mike 35-36 and 43-49, strength 27.0-28.9, uniformity 81.0-81.9) in the seven designated markets measured by the U.S.Department of Agriculture averaged 63.88 cents per pound for the week ended Thursday, August 14, 2014. The weekly average was down from 64.61 cents the previous week and 86.83 cents reported the corresponding period a year ago.
America’s Five-year Plan
Whether the current crisis in cotton prices proves to be short-term or long-term, the turnaround of the U.S. textile industry has been nothing short of phenomenal. Five years ago, the outlook for U.S. spinners, and the textile complex as a whole, was as bleak as at any time in history. Employment was at an all-time low. The number of large, diversified yarn manufacturers had, in a matter of months, gone from three to one, with Parkdale as the sole survivor. Smaller companies were shutting doors every day.
Fast-forward five years and the entire industry dynamic has shifted. Business conditions have been consistently strong for more than 30 months, with just a random downward blip here and there. Operating and raw material costs, for the most part, have remained relatively stable. New plants are being built, and employment is increasing to pre-Great Recession levels.
Today, some spinners are finding they now have more business than capacity. Demand for ring-spun yarns has consistently outstripped capacity for more than a year. And open-end is currently the strongest it’s been in some time, spinners say.
Why such a turnaround — especially when things looked so bleak just five years ago?
“A lot of spinning has returned to this hemisphere,” said one rep who sells both domestic and imported yarn. “And, due to the weak dollar and the need for quick turnaround, it looks like it is going to stay around for quite some time.”
Rising wages in China and other countries, along with higher transportation costs, have resulted in numerous programs returning to the Western Hemisphere. Furthermore, the grassroots Made in USA campaign has contributed, as more and more retail establishments create special sections for domestic merchandise. Wal-Mart, for example, has committed to stock and promote more than $50 billion of American-made products, including home fashions.
Said one industry insider: “I know a lot of people are working on Made in USA programs. Part of this is consumer-driven, as retail customers pay increasing attention to country of origin, sustainability, traceability and transparency. But a lot is also driven by customers who continue to see their costs in Asia go up. With reduced transportation and inventory costs, it is beginning to make more sense for many companies to return their programs to the United States.”
From 1997 until 2009, some 650 textile plants closed. Today, however, the industry is beginning to expand again. “In 2013, companies in Brazil, Canada, China, Dubai, Great Britain, India, Israel, Japan, Korea, Mexico and Switzerland, as well as in the U.S., announced plans to open or expand textile plants in Georgia, Louisiana, North Carolina, South Carolina, Tennessee and Virginia,” reported USA Today.
“Barring some unforeseen upheaval, our industry is healthier today than it has been in many years,” said one spinner. “I see the potential for continued growth, as more and more customers realize the advantages that can be had by placing programs with U.S. companies. These are great times for the industry.”
Added an industry insider: “Given the history of this business, I think a lot of us are just waiting for so
mebody, somewhere to pull the rug out from under us. It’s what we’ve come to expect. But this time, I believe there is substance and sustainability to our recovery.”
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