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By Pat Munro
According to recent economic research, the American cotton industry generates over $25 billion in products annually. About 80 countries around the world produce cotton, but the U.S., China, and India together provide two-thirds of the world’s volume. Cotton accounts for about 35 percent of world fiber use. Presently, due to economic recessions and/or climate change, local cotton growers and producers are beginning to hoard their stock. Why, you may ask? The answer includes a volatile stock market, global insecurity, fragile consumer confidence and persistent high unemployment. The USDA estimates that the world cotton output will reach 113.9 million bales of cotton, compared to 102.9 million bales last year. Global consumption is projected to increase to 119.1 million bales by next year. As a result, retailers and wholesalers in the U.S. are focusing on the need for effective risk management planning to deflect rising costs of cotton. This past year alone, global cotton prices have increased by 55 percent for cotton per pound. It is expected that by spring 2011 there will be another increase of 10 percent.
For the first time in 50 years, world consumption of cotton in the 2010-11 year is forecast to exceed production for the fifth straight year. Foreign factories, as well as the entire supply chain from spinners and dyers to sewers and finishers, are said to be pressing for shorter lead times and hefty price commitments since the price of cotton futures jumped 93% last year. Because of this, India has installed an indefinite ban on raw cotton imports from other countries; they are presently the number 2 producer of cotton. Because of this Pakistan, the world’s fourth biggest cotton producer might shut down their mills because they rely on imports from India.
What does this mean for cotton producers, and manufacturers in the U.S.? The U.S., which ranks third in production of cotton, is the leading exporter of the product, accounting for more than one-third of global trade in raw cotton pricing. Manufacturers such as Hanes brands, Inc., Fruit of the Loom Inc. and Jockey International who specialize in underwear, T-shirts and casual wear say they expect they will have to absorb the price increases, and in some cases, a few will raise price points. Also, a majority of other stores who source their own private label programs of cotton goods are facing the same problems as wholesalers.
It’s possible that the shrinking cotton inventories will drive the stock-to-use ratio to the lowest level in sixteen years.
It seems that the American cotton producers and manufacturers have a big task at hand. They will have to ride the thin line between producing and retaining healthy stock levels, and working on the world market with the current atmosphere of economic instability and deception. Maybe the prices will rise, maybe there will be less availability, there are many ‘maybes’ in this current situation. Or just maybe, for the next few years, the cotton industry will have to make some serious changes in the way they develop and market their product in order to retain the ‘All American’ seal of approval we’ve all come to love and snuggle up to.
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