Mixed Markets – Outlook Varies By Segment


E
arly 2007 finds cotton spinners uncharacteristically concise with their commentary, which
may reflect some uncertainty about where the business is headed.

Ring spinning is still flourishing with a typical seven-day-a-week schedule. A ring spinner
that does considerable Pima business says business is excellent and the new Pima crop is “running
good.”

“Everybody wants something new and different,” he said. “You have to experiment with new
products or suffer with commodity prices.”

“This quarter will be slower unless denim picks up,” allowed another ring spinner.

At the same time, some niche spinners are coping with a fall-off in demand.

“Running conditions are fair to poor for the first time in a while,” said a specialty
spinner. “We have decent business right now. Our biggest problem is the ‘export’ of our customers.”

“All markets are at risk from imports,” said an industry observer. “I don’t see that
changing. Conventional wisdom six or seven years ago was that the home furnishings business would
stay onshore. Now that’s increasingly an import business.”


Unifi Continues Strategic Struggle

On the man-made side of the business, Greensboro, N.C.-based Unifi Inc. continues to hold
center stage. The company has been fighting a marathon battle in recent years to reinvent itself
and regain profitability in a profoundly changed marketplace.

Its latest moves include: getting ready to sell its half of joint venture Unifi-SANS
Technical Fibers LLC; showcasing its Repreve® yarn made from recycled materials through a
partnership with Valdese Weavers Inc., Valdese, N.C.; and completing its acquisition of Dillon Yarn
Corp.’s textured nylon and polyester yarn manufacturing assets in Dillon, S.C., for $62.5 million.

The Dillon Yarn purchase makes Unifi both the 350-pound gorilla and the major partially
oriented yarn supplier in texturing, noted one texturizer, who described his running conditions as
“down a bit” compared to last year’s record first quarter. Asked to summarize his major markets, he
reported: “Upholstery is not well at all. Industrial is holding its own and maybe up a little. The
sock trade is holding on. Antimicrobial yarns and flame-retardant yarns remain a blip on the
radar.”


Cotton Crop 2006-07

The US cotton crop for 2006-07 remains estimated at 21.7 million bales — upland at nearly 21
million and extra-long-staple (ELS) at 756,000 bales — compared with the 2005-06 record of 23.9
million bales, according to the US Department of Agriculture’s latest Cotton and Wool Outlook.

According to the latest Cotton Ginnings report, ginnings were about 97 percent complete by
the beginning of February, with about 21.1 million bales ginned. Based on this production estimate
and current estimates for beginning stocks — 6.1 million bales — and imports — 25,000 bales — the
2006-07 US cotton supply is forecast at 27.8 million bales, 5.5 percent below last season’s record.
Meanwhile, total demand this season is projected to decline to 19.5 million bales, the lowest level
in four years. As a result, 2006-07 ending stocks are forecast to rise 37 percent, to 8.3 million
bales.

US cotton producers intend to plant 13.2 million acres of cotton this spring, down almost 14
percent from 2006, according to the Memphis, Tenn.-based National Cotton Council’s (NCC’s) 24th
Annual Early Season Planting Intentions Survey. Upland cotton intentions are 12.83 million acres, a
decrease of 14 percent from 2006. ELS intentions of 361,000 acres represent a 10.9-percent increase
over 2006.

Under ideal conditions, a 22 million-bale crop would not be out of the question, while severe
weather problems could reduce the crop to the 18 million-bale range, according to NCC estimates.

Based on survey results, the Southeast, Mid-South, Southwest and Far West will have intended
upland cotton planting decreases of 22 percent, 20 percent, 7 percent and 16 percent, respectively.

Southeastern states show a significant shift into corn and lesser shifts into wheat and
soybeans.

In the West, for the second consecutive year, California growers intend to plant less area to
upland cotton, with the shift this year to ELS cotton and wheat.



March/April 2007
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