High cotton price - how did we get there?

10 years ago cotton was pricing at about $.43/lb and today it is around $2.13/lb

• In 2008 Cotton Market started to tighten (Supply & Demand).  At $.60 or $.70 it’s below cost of production for farmers.
• In 2009 the price dropped somewhat during recession – so farmers planted less.
• In first half of 2010 the market started to recover and prices went up.
• In second half of 2010 prices skyrocketed.

Why did this happen?

1. The Fundamental Balance has Tightened.  Mill consumption recovered faster than farmers’ ability to grow cotton.  Prices went up.  Cotton harvests are in the Fall and it takes a year to replenish and about 2-3 years to balance out.

2. China continues to be a huge consumer of cotton and has to go to market to buy it.  Mills are buying.

3. Exportable crops are sold out.  India didn’t release full capacity and took their cotton off the market.  Brasil in the Southern hemisphere is coming to market but is too small to make a dent in market quotes.  33% of 2012 crop already sold and it hasn’t even been planted yet.

4. Price volatility remains high making it hard for mills to commit at times.

On the Supply side:

Production should increase in 2011/2012 but this new cotton will not come to market until Fall of 2011.  China is hoarding cotton frantically.   Cotton futures (ICE futures) show the price coming down over the next two years from about $1.89/lb in 2011 to perhaps around $.96 in 2013, but we’re not going to see the prices of 10 years ago.  Also – government policy in the USA has been pushing ethanol which has warped the price of corn.  Farmers in many instances have also been forced to choose between growing corn or cotton.

On the Demand side:

Emerging economies (BRICS) driving demand plus recovery in industrial markets plus consumers spending less on clothes due to higher prices.

The reality is that clothing and anything made with cotton will simply cost more.  Here’s an article from CNBC hitting this very subject.

So what can Brands/Buyers do ?

Offensive cost optimization such as add seeing if polyester can be added in some percentage to their lines if possible.  Reduce the amount of cotton used until prices fall back a little.

Find a new Supplier of your cut & sewn goods that could have better pricing on cotton from having larger sources that bought in the past at a better price.

Read more from http://sourcingthreads.wordpress.com/2011/02/15/very-expensive-jeans-for-all-part-2