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Yarn Market
Alfred Dockery, Technical Editor

Spinners Solidly Behind CAFTA-DR

Alfred Dockery, Technical Editor

M ills are rocking along with full running schedules. Most market segments look good.

“We are still running strong, flat out seven days,” said an open-end spinner. “Cotton is very strong. Blends are not quite as strong. We’ve been running strong going back into last year.”

Spinners are optimistic about the near-term business outlook with the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) in place, although a few do see signs of easing demand.

“As far as the next few months, it looks as if the weaving market is slowing down, which will affect the yarn market soon,” said one ring spinner.

A pickup in hosiery orders is expected because of China safeguards, while the upholstery fabric market continues to lag. The growing appeal of leather furniture may be depressing this segment. Furniture makers also report slow sales, due in part to aggressive promotions from automakers.

CAFTA-DR Opportunity

Most spinners see DR-CAFTA as an opportunity and perhaps the only way to compete with Asia.

“[DR-]CAFTA was really a matter of saving the industry,” said a multisystem spinner. “ Critics said we would lose jobs, and I don’t disagree. But I think it was a matter of losing jobs or losing the industry. Some of the more labor-intensive work, which has been going out of the United States for many years, will continue to move out. But there will be a base left that might not have been possible without [DR-]CAFTA.” 

No More Step 2?

The US Department of Agriculture (USDA) has proposed eliminating Step 2 payments in response to the World Trade Organization ruling in Brazil’s case against the US cotton program. Step 2 is part of the Three-Step Competitiveness Program included in the 1990 farm bill that helped offset low cotton pricing from other countries in the late ‘80s.

Spinners appear neutral on the possible elimination, but have concerns about when and how the change will be implemented. It is vitally important to the mills that they be able to buy cotton at the same price as competitors abroad.

“Step 2 rectifies the difference between world and US cotton prices,” said a mill executive. “ I think it is reasonable to assume that without Step 2 prices, cotton prices will actually fall. [T]he market will have to make up that difference if US cotton is going to be competitive on the world scene. Over the last 10 years, the United States has become a residual supplier to the world. We have gone from a 65/35 split of US cotton being used domestically to the opposite — 35/65. So they will have to be competitive in terms of world prices.”

Connecting With Retailers

One spinner described yarn prices as stable at best. Others admitted to a falloff in pricing due to conditions at retail. US spinners would like to see more cooperation between themselves and retailers. They feel more products could be sourced in the United States if retailers didn’t automatically exercise the China option.

“In the past year, our average price has dropped 20 cents a pound,” said a specialty ring spinner. “There is tremendous price pressure from the retailer. They don’t accept any price increases. You have to make it cheaper than you did last year. That’s very difficult with the price of energy, labor and just about everything else going up.”

Cotton prices should stay relatively stable, with China, India and domestic producers planning to increase plantings.

In the USDA’s June acreage report, it estimated 2005-06 US cotton plantings at 14 million acres, up 2.7 percent. Upland planted area is estimated to have increased 2.6 percent to 13.8 million acres.

On a regional basis, upland area in the Southeast is up 1 percent to about 3 million acres. Planted acres are expected to increase to 3.9 million

in the mid-South in 2005, up 13.1 percent. In the Southwest, estimated upland area is down 0.9 percent to 6.1 million acres. Estimated upland area in the West is down 8.4 percent to 795,000 acres.

The USDA estimates extra-long-staple plantings of 266,000 acres, up 6.6 percent. The largest percentage increase is in Arizona; estimated plantings there are up 33.3 percent to 4,000 acres. Plantings also are up 7 percent in California and 4.8 percent in Texas.

September 2005

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