California Apparel News

Cotton production in the United States should rise by 5 percent later this year and by 9.8 percent in China. But whether that and an overall 6 percent bump in the world cotton crop will put a lid on skyrocketing cotton prices is a good question.

“It is going to take a long period of time to adjust back to more supply,” said Mark Messura, senior vice president of global supply-chain marketing for Cotton Inc. “It doesn’t happen in a quarter or six months, and I contend it won’t happen in a year.”

China’s and India’s economies are on fire, which means consumers there are snapping up clothes as fast as they acquire new homes and bigger closets. At the same time, the United States, Europe and other industrialized regions are popping out of their economic shells with consumers rediscovering their credit cards and hitting the malls.

“When China is a buyer, it is a big buyer and it can significantly move prices,” Messura said, speaking at a Los Angeles meeting of the U.S. Association of Importers of Textiles and Apparel on Feb. 11 at the Los Angeles Marriott Downtown. Free-trade agreements, sourcing and the ubiquitous cotton problem were high on the agenda.

Cotton for March delivery closed at $1.85 a pound on the ICE Futures U.S. exchange in New York. This is more than double the price one year ago, which leaves textile mills and apparel manufacturers uncertain about whether they should snap up futures now or gamble that prices will slip into more-affordable territory later this year. Cotton for December delivery recently closed at $1.22.

Many textile mills and factories don’t have cash to purchase futures now for delivery later. And mills in China and other major producing countries often don’t deal in futures. “They are not sophisticated in futures, so they can’t take advantage of it,” Messura noted.

The easy solution to this cotton problem seems to be planting more cotton. But Messura observed that the cotton industry is not like a factory. You don’t just order up more cotton and two months later boost its supplies. Cotton has a one-year growing season, with planting in the United States occurring in March and harvesting taking place in the fall. The new crop becomes available in late October through December. About 80 percent of the world’s cotton is grown in the Northern Hemisphere, such as in India, China and the United States. Brazil and Australia, being in the Southern Hemisphere, fill in for the rest of the year.

But higher cotton prices aren’t pushing farmers to hit the cotton trail. Soybean and corn prices have risen, too. “From a farmer’s perspective, you can make more money with soybeans, and it is easier to grow,” Messura said.

The cotton problem started a few years ago. With a recession, world demand for apparel declined in 2008 and 2009, and farmers reacted by planting less cotton. When apparel consumption inched back up last year, cotton production didn’t keep pace, creating a supply/demand gap that is causing problems in production. “Mills are in panic mode,” said David Spooner, a speaker at the one-day seminar and a former textile and apparel negotiator with the U.S. Trade Representative’s office as well as the former assistant secretary of commerce in the George W. Bush administration. “Some companies could go under.”

In addition, India last April decided to prohibit export of its cotton crop so its mills and manufacturers were assured a steady supply of cotton at good prices, giving them an edge over Chinese apparel factories. In September, India indicated it might release some cotton for sale, but that hasn’t happened yet.

India now has about 1.2 million bales of cotton in its warehouses, Messura observed, which it is considering selling on the international market. Even though that amount may weaken cotton prices, it won’t change them substantially, he said.

The question now is whether consumers will be willing to pay 10 percent to 15 percent more for clothing as apparel manufacturers ratchet up their wholesale prices to recuperate their raw-material costs.Free-trade outlook

Free-trade agreements have been in the news a lot lately. Congress is expected to vote on the U.S.-Korean Free Trade Agreement this July after a long, drawn-out negotiating period to resolve issues such as automobile imports and exports.

But not many people expect to see the free-trade agreements with Colombia and Panama, signed by the Bush administration in 2007, to be resolved soon. “I don’t think Panama’s prospects for passage this year are any better than Colombia’s,” said Jon Fee, a speaker at the seminar who is an attorney specializing in trade and customs issues with Alston & Bird in Washington, D.C.

The problem for Colombia is the level of violence against labor-union organizers. Panama is still considered a tax haven for people trying to hide their money. Until the government changes its banking rules and regulations, it won’t see a free-trade agreement come to light soon, Fee said.

One free-trade pact being pushed by the Obama administration is the Trans-Pacific Partnership, an economic zone between an odd assortment of countries in Asia and the Western Hemisphere. Currently in the partnership are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. Japan and Canada are expected to join the group soon, which has held a number of meetings. The sixth round of negotiations is scheduled in late March in Singapore.

“The Obama administration announced it wants to end negotiations by the end of 2011,” said Spooner, who now works for the law firm Squire Sanders & Dempsey in Washington, D.C. “But we are skeptical this will finish soon.”

U.S. Top Ten Apparel Suppliers

China 42.00%Vietnam 7.70%Bangladesh 6.45%Indonesia 5.12%Honduras 5.09 %India 3.96%Mexico 3.86%Cambodia 3.79%El Salvador 3.28%Pakistan 2.82%

Source: U.S. Department of Commerce