Climatic disruptions and shipping delays threaten supplies, adding to clothing prices around the world. Cotton futures hit $1 a pound for the first time after almost a decade. There are problems with crops in several key-growing countries, from rain-soaked fields in the U.S. to bollworm-infested ones in India. Meanwhile, cotton buyers need more of the fiber. China and Mexico are buying record quantities. High freight rates and geopolitics also complicate supplies, with international backlash over labor violations in Xinjiang, China’s largest cotton producing region. The United States had banned imports earlier this year.
The combination of all this will drive up prices, which is why clothing prices will rise. As a result, margins for apparel makers like Levi Strauss & Co. will be squeezed, resulting in inflation for everything from jeans to T-shirts.
The contract for December delivery in New York rose as much as 3.6% to $1.0155 a pound, the highest price since November 2011. The price has risen 28% this year. Gains are being accelerated as traders cover short positions. As cotton is expected to see a second year of global supply deficits, traders are keeping an eye out for an update due this week from researcher Cotlook.
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According to Louis Rose, director of research for Rose Commodity Group in Tennessee, the rally likely won’t surpass the $2 level reached in 2011. ‘Ten years prior, China was virtually out of cotton — not so this time,’ said Rose, who previously worked for Cargill Inc.
John Robinson, an economist at Texas A&M’s AgriLife Extension, believes cotton prices are unlikely to double anytime soon. Supply chain disruptions are hurting cotton, but U.S. production fears are overblown, he said. ‘Since Friday this run-up has been from speculator buying, and that can turn around as fast as it started,’ he said.
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