Textile, Cotton Producers Will Pay

his month, the Yarn Market reported the price of cotton at 32.71 cents per pound — the
base-grade average for seven designated markets. Also noted was the fact that some companies were
fixing cotton at about this price. Fixing cotton leads some of us to think that prices might be
near the bottom, and that things are about to level out or turn around. Well, this month’s
quotation for base grade in the seven designated markets averaged 26.77 cents per pound — almost 6
cents per pound lower. The price for 1.5-denier staple polyester moved slightly lower to about 53
cents per pound. So who is to guess where the bottom of the trough might be?

Although raw-material prices continue to move lower, that doesn’t seem to have any impact on
the economic outlook of textile mills. Business is not out there — plants are still closing and
unemployment is rising. There doesn’t seem to be a light at the end of the tunnel. Are things going
to get better? Most managers who spoke with the Yarn Market during the past week said, “Things will
probably get worse before they get better.”

Some may wonder how things could get any worse. Well, there is one major activity currently
going on that will have a huge impact on our industry – the war in Afghanistan.

It seems that most individuals and/or countries would be willing to “freely” pitch in and
fight/eliminate evil, especially when it is in their back yard. But that is not the case in many
societies. For us to carry out our objective in Afghanistan, we must pay neighboring countries —
Pakistan, India, China, Uzbekistan, Tajikistan — for the use of their land, air, participation,
etc. What is the pay? Textiles. We will reduce/eliminate restrictions barring shipments of their
textile goods into the United States. With this happening, we would expect more plants to close and
unemployment to rise.

One factor that feeds into this equation in the short term is the type of products that might
be entering the United States. If you are a ring spinner, beware. Ring spinning is the predominant
yarn-manufacturing system in these countries. Therefore, we should expect an increase of these
yarns, and products from these yarns, coming into the United States. There is much less rotor yarn
production and almost no air-jet capacity in these countries.

Challenging Times

One spinner was asked, “Do you know of any spinners of knitting or weaving yarns that are doing
okay?” His response was, “No. They are all losing money — spinners, weavers, knitters and fiber
producers. Several of the top textile companies are near or in Chapter 11. Most are barely hanging
on. If something doesn’t change soon, there won’t be a textile industry in the United States.”

With mill closings, the domestic demand for cotton is down and will continue to decrease if
current trends in the textile industry continue. So, one might ask, “What is going to happen in the
U.S. cotton industry?” Production is up, consumption is down, and prices are down. If U.S. mills
are not here to buy this cotton, one might ask, “Are we going to produce cotton only for export?”
If we do, the government will probably have to provide a larger subsidy to help producers be
competitive in the global market place. Or, as has been asked before, will cotton production follow
the textile industry and go offshore?

In fact, the Yarn Market received a call recently from a cotton producer to discuss his
dilemma. He said, “With ginning cost and government discounts, I am selling my cotton for 20 cents
per pound.” Clearly, he had not considered his government loan deficiency payment (LDP) that has
been in the range of 27 to 31 cents per pound. Still, 51 cents per pound is 12 to 15 cents per
pound below the cost of production in his area. He can’t stay in the cotton-producing business long
at this rate.

A patriotic note: Patriotism has not been higher in the United States since WWII. This is
definitely true. We are textile people and marketers. Are we doing as much as we can to capitalize
on the patriotic feeling throughout this great country of ours? Should we be developing/promoting
strategies for buy “All American” or “Only From America” or “America — Beginning to End”? What do
you think? It is terrible that we have to buy American flags and ribbons from one of the
above-listed countries.

December 2001