Demand Strong; Availability Uncertain
Jim Phillips, Yarn Market Editor
Orders for yarn continued to be strong in early January across virtually every segment. Open-end
(OE) yarns are moving well, and the demand for ring-spun yarns is such that buyers are struggling
to locate product.
"Ring-spun yarns are just not to be found right now," said one spinner. "And it's not just yarns from this hemisphere, either. Ring-spun is in short supply all over the world. If you don't already have a position with a manufacturer, it's going to be almost impossible for you to get yarn anytime soon."
Cotton yarns of all types continue to be in high demand but short supply. The 2010 cotton crop sold out early, and there was some hope that cotton availability would increase and prices would decrease as the 2011 crop came to market. However, after a short dip in early January, prices began moving back near the record levels recorded in late 2010, due in large part to extensive crop losses in Australia.
For the week ending January 13, quotations for the base quality of cotton in the seven designated U.S. Department of Agriculture markets averaged 137.85 cents per pound. Cotton futures for March delivery rose by the Intercontinental Exchange (ICE) Futures Exchange limit of 2.8 percent (4 cents) to 147.25 cents per pound, the biggest gain since Dec. 21, 2010, when futures reached the record price of 159.12 cents.
Weather Impacts Could Be Far-reaching
Much of the recent jump can be attributed to the worst floods in more than a century in Australia. As of mid-January, the Australian Cotton Shippers Association estimates that more than 300,000 bales of cotton crop have been destroyed, accounting for nearly 10 percent of the estimated 2011 crop yield in Australia. Losses could continue to escalate if wet weather continues.
While the floods that have devastated parts of Australia have caused immediate short-term impact to the world cotton market, spinners and industry observers warn the effects could be far-reaching.
"You have to consider that cotton is not the only crop to suffer damage in Australia," said one yarn exporter. "There has been damage to the wheat crop as well. It becomes a pretty clear-cut decision when the choice is between growing cotton and feeding people, so I would not be surprised if some cotton plantings were replaced by wheat. The Australian flooding, coupled with droughts in Russia, has caused global concern that wheat demand may outstrip supply in 2011."
He continued: "Further, farmers know the old adage, 'what goes up, must come down,' and they are well-aware that higher cotton prices won't last forever. So, when faced with choices in planting for the next harvest, they may look to what they see as potentially more profitable crops."
Price, Fiber Shortages Create Concern
"Price is going to be an issue for everyone, particularly as we get into the third quarter," said one spinner.
"The most pressing issue I see as I look forward to the rest of 2011 is availability," said another. "A lot of spinners were able to cover for the first half, thinking that by the second half it would be okay. But looking at the way things stand right now, I think the second half is going to be worse. For those people who covered for the first half but then have to go to market price for the second half - the question is, how are they going to do it? Will retail accept the price increases? Will they stop buying? It's anybody's guess at the moment. Retail has accepted some price increases to date, but they are fiercely fighting over each one."
Said yet another spinner: "The availability of fiber continues to be an issue, and it is likely to get worse as the year goes on. As we look at the year, I think the biggest concerns over the first half are going to be pricing and the availability of fiber. But as we go to the second half, availability of fiber is going to be the biggest issue. And if you can't find fiber, it won't matter how much money you've got to spend. And this is a global problem, not just a U.S. problem."
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