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Alfred Dockery, Technical Editor

Cotton Economic Trends

By Alfred Dockery, Technical Editor

M any market forces and trade issues will shape trends in cotton pricing, consumption, and cotton and textile trade patterns this year and beyond — including world cotton consumption, China’s status as a net importer of cotton, a weak dollar and higher man-made fiber prices — to gauge some possible outcomes.

Two major factors — the 2007 Farm Bill and the appeal of the Brazil/ United States World Trade Organization case — remain too far out for their effects to be analyzed at this time. On the other hand, some of the effects of the January 1st expiration of the Agreement on Textiles and Clothing seem pretty clear. With quotas eliminated, apparel imports will increase and prices likely will decline.

“The most significant and persistent trend is the decline in average prices for retail clothing in the US market,” said Gary A. Raines III, manager, fiber economics, Cotton Incorporated, Cary, N.C. “This trend continues to pose challenges for all segments of the supply chain.”

Cotton Consumption

World consumption will depend largely on world gross domestic product and the relative price of alternative fibers, according to Raines. With major economies forecasting continued growth in 2005 and with the long-term price of crude oil expected to stay robust, the outlook for cotton consumption remains bright, particularly in light of consumers’ ongoing affinity for cotton textile and apparel products (more than 35 pounds per capita in the United States).

“We will see increases in world fiber consumption, trending upward over time,” said Bruce Groefsema, vice president, Western operations, Weil Brothers Cotton Inc., Montgomery, Ala. “I’m confident that per capita numbers will continue to increase around the world. Our battle is to make sure that cotton gets its share, which means we have to be relatively price-competitive and improve our ability to maximize the spinnability of cotton.”

China Is A Likely Cotton Importer

US Department of Agriculture estimates peg Chinese imports this year at 7.8 million bales, just down from the record 8.8 million bales China bought last year. Typically, in years when China is a large buyer on the world market, the United States has supplied about 55 to 60 percent of total Chinese purchases.

“So far this marketing year, substantial sales and shipments to China have yet to materialize,” Raines said. “Chinese mill use has mushroomed the last few years, handily outpacing production. As a result, Chinese ending stocks have withered. Chinese production is expected to reach a record level this year of 29.5 million bales. Even so, this is well short of mill use requirements, meaning China must eventually import sizable volumes of cotton to keep pace with mill demand.”

A Weak Dollar

Over the last three years, the dollar has fallen by 35 percent against the euro and by 24 percent against the yen. With many foreign mills purchasing US cotton in dollars, the greenback’s decline may serve to spur export sales abroad, while hindering textile and apparel import penetration into the United States, according to Cotton Incorporated.

“The biggest impact of a weaker dollar is on foreign cotton producers,” Groefsema said. “It puts a lot more pressure on the Australians and the West Africans than what they traditionally have been under. It negatively impacts their ability to compete pricewise. That’s the way exchange rates work. There have been plenty of years where we’ve had a strong dollar, and they were the beneficiaries.”

The Man-Made Fiber Squeeze

While much is made of the link between oil and man-made fiber prices, Raines pointed out that polyester, although a derivative of oil, is not immediately related. There are many other chemical products between petroleum and polyester, each of which can influence the price of polyester.

“Relatively low prices for cotton experienced this year have dampened the ability of polyester prices to increase,” Raines explained. “When cotton prices begin to rise, we should also expect to see polyester prices begin to move higher.”

February 2005

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