Advertising Specialty Institude (ASI) Central (10/19/2010)
A variety of factors, including high demand in Asia and disappointing crops in several countries, have driven cotton prices to their highest level since the Civil War. Before trading stabilized yesterday, cotton futures reached $1.19 per pound, an increase of 80% compared to last year. According to the U.S. Department of Agriculture, this is the fifth consecutive season that the global demand of cotton has overwhelmed the supply.
More so than in other years, poor weather in Pakistan, one of the world’s largest cotton exporters, has contributed to atypical prices. As recently as April, Pakistan expected to produce 14 million bales of cotton in the 2010-11 season, compared with about 12.7 million bales in the previous season. Yet, because of unprecedented flooding, government and industry officials now estimate an output of about 11.6 million bales. Further driving up prices, traders also remain concerned that export restrictions in high-producing India will limit the amount of cotton that can be sent to large countries like China, which manufacturers $13 billion of apparel per month.
Faced with the alternative of lower margins, multiple apparel retailers, including Levi Strauss & Co., have already announced price increases. Executives from Kohl’s, Aeropostale Inc. and Guess have also hinted cotton prices are exerting pressures on product cost. Analysts expect retail prices to steadily climb, with the most noticeable markups found in relatively low-cost items like T-shirts, hurting discounters.
The last time cotton prices were this high was during the 1860s, when blockades interrupted the flow of the commodity from the U.S. to Europe. Then, prices reached $1.89 per pound.
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