Growing global markets push up cotton prices(69515)

Price of cotton testing 1995 peak

The commodity is projected to extend its gains because demand is growing in Asia s developing nations, even as signs emerge that the U.S. economic recovery may slow.

Cotton may be climbing to its highest price since 1995 as rising demand in emerging markets for everything from shirts to bed sheets forces textile makers to restock inventories that are the tightest in 13 years.

Export sales by the United States, the largest shipper, are off to their fastest start since 1993 as apparel demand in China the biggest consumer rose 24 percent, government data show.

Cotton may rise 13 percent to a 15-year high of 94.9 cents a pound before new supplies are harvested in October, according to 17 analysts surveyed this month.

The commodity is projected to extend its gains because demand is growing in Asia's developing nations, even as signs emerge that the U.S. recovery may slow.

While the rally is enriching some cotton investors, it's also boosting costs for Levi Strauss and Hanesbrands, the maker of Hanes underwear and the Wonderbra. The last time cotton traded above 90 cents a pound in 2008, some merchants including Paul Reinhart were forced into bankruptcy.

"Global consumption is exploding," said Ron Lawson, a managing director at Logic Advisors, a commodity consultant in Sonoma, Calif. "We just can't get enough cotton in place to meet the growing demand."

Production by the world's cotton farmers will fail to keep up with demand for a fifth straight year, according to the Department of Agriculture. That's eroded inventories that merchants were reluctant to expand during the past two years.

U.S. stockpiles totaled 3.1 million bales at the end of the marketing year July 31, the lowest level since 1996, Agriculture Department data show.

Supplies in warehouses monitored by U.S. Immigration and Customs Enforcement have plummeted 98 percent since the end of May to 25,504 bales as of Aug. 12. A bale weighs about 480 pounds.

Global demand probably will grow 2.7 percent this year to 120.87 million bales as China boosts imports by 14 percent to 12.5 million bales and Pakistan's surge 53 percent, the USDA said this month.

Worldwide stockpiles will drop 4.1 percent to 45.61 million bales, or about 38 percent of demand, the lowest ratio since 1994, government data show.

"During the recession, everyone got rid of inventories," Lawson said. "Yarns, woven goods, textiles, clothing, you name it. There was tremendous purging, and now everyone is trying to rebuild inventories."

Stockpiles are slipping as emerging-market economies expand at more than twice the pace of the U.S. and six times the rate of the eurozone. India will grow 9.4 percent this year and China's gross domestic product will increase 10.5 percent, the International Monetary Fund forecast in July.

A "strong" cotton crop this month and in September may curb the rally in cotton, according to Eric Wiseman, the chief executive of VF, the maker of Lee and Wrangler brand jeans.

The global harvest is expected to jump 14 percent to 116.85 million bales in the year that began Aug. 1, the most in three years and the biggest increase since 2005-2006, the USDA estimates. U.S. output will surge 52 percent to 18.53 million bales, with the bulk of the harvest starting in October, the department said.

"The August and September cotton crop is expected to be strong," Wiseman said in July. "That could provide some relief next year."

Cotton prices may remain "historically high" until at least the U.S. harvest, said Cliff White, a senior vice president at Singapore-based Olam International.

"Supplies of cotton are at all-time lows," Hanesbrands CEO Richard A. Noll said in July. "While I can't predict the price of cotton on any given day, I do think over time, long term, you're going to see the price of cotton continue to rise."

Growing global markets push up cotton prices

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