Cotton’s Future Up for Debate at Sourcing USA Summit
Cotton prices are down to about 70 cents per pound, but many in the apparel and textile industry still remember the 2011 peak, when cotton hit a $2.44 high.
At the recent Sourcing USA Summit, economists and industry watchers offered a forecast for the availability and cost of cotton in the coming year.
“The worst of the recession is behind us, but we are looking at looming effects and a slow growth,” said Gary Adams, vice president of economic and policy analysis for the National Cotton Council of America (NCCA), who spoke on the second day of the Nov. 14–15 conference, held at Terranea resort in Rancho Palos Verdes, Calif., and organized by the Cotton Council International and Cotton Inc. In the current economic environment, some mills are reluctant to purchase raw cotton. The price of cotton is always dependent on several factors: the global economy; price of man-made fibers relative to cotton (cotton rings in at double the price of polyester); and weather—specifically, extreme weather conditions in the Southwestern region of the United States. If droughts occur, U.S. crops can decrease 2 million to 3 million bales.
New developments impacting cotton prices include consumers’ adoption of synthetics, particularly among 20- to 30-year-olds, even for traditional cotton items such as denim.
Imports of denim fabric are down 5 percent, according to David C. Brandon Jr., senior vice president of wealth management, futures specialist and financial adviser for Morgan Stanley Wealth Management.
“There is a severe market loss in the cotton supply chain,” said Allen A. Terhaar, senior adviser of Cotton Council International, in a summary of the conference.
Consumers aren’t showing the loyalty to cotton they have in the past. Experts said the cotton industry needs to adapt to consumers. In the new consumer era, cotton will be available in blended or man-made fibers.
At the opposite site of the supply chain, farmers are also shifting more acreage to more price-stable crops, such as corn or wheat.
According to the National Cotton Council, all U.S. plantings for 2012 are estimated to have decreased about 7.5 percent since last year.
The industry’s goal must be to increase cotton consumption and create demand, which means keeping prices low, said panelist Ron Lawson, president and chief executive officer of Steadfast Futures and Options/LOGIC Advisors.
Short-term price impact versus long-term impact Another issue with potential to impact cotton prices is China’s reserve policy. China is estimated to have at least 42 million bales of cotton on reserve, which is an estimated seven-year supply stock.
For now, there is a lot of guessing. Will China sell its reserves to mills at the high prices cotton was commanding when the country started to stockpile the fiber? Or will China dump cotton on the world market at low prices? These questions put pressure on mills and the industry as a whole, panelists said.
There was little consensus on future cotton prices, with John Baffes, senior economist with the World Bank, saying prices are likely to rise, while NCCA’s Adams said prices should remain flat. However, gains in market share could be made as the price of synthetics and cotton eventually converge. Plus, China’s cotton reserves could be offset by smaller cotton suppliers in Peru, Mongolia and the Middle East—countries and regions that offer collaboration opportunities across the cotton supply chain, changing the overall outlook on the economy of cotton, including competitive pricing and availability.
