There could be some help on the horizon for the cotton crisis that has gripped the apparel industry.
Cotton Incorporated economist Jon Devine said Thursday that based on early estimates of increased cotton harvesting and production this summer and fall, cotton prices should stabilize after spiraling to record highs in recent months. Noting that cotton prices exceeded $2 a pound last month due to extreme supply and demand pressures, an easing of the volatility seems to be coming.
“Volatility remains a dominant feature of price movement, making business decisions difficult throughout the cotton supply chain,” Devine said in Cotton Inc.’s first podcast. “The reason cotton prices are so high and so volatile is that supplies have gotten tight relative to demand.”
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Since the 2005-06 crop year, supply has outpaced demand, becoming the widest in 2009-10, with 15 percent of usage coming from stocks instead of crops. He noted that prior to that, cotton prices had been relatively low, so farmers began planting more soybean and corn that produced higher yields and profits, at the same time that cotton demand was increasing from growing emerging world markets.
Devine said projections for the August crop season, although admittedly early, are for “the largest cotton harvest ever recorded” worldwide, at 127.5 million bales, representing 6 million bales more than have ever been harvested. Devine said a composite average of forecasts from the U.S. Department of Agriculture, the International Cotton Advisory Committee and the Cotlook A index are for a 10 percent increase in supply in the 2011-12 crop year from the 12-month period.
However, as the world economy continues to show signs of rebounding from the global recession, consumer consumption is expected to increase 3 percent to 123.8 million bales, leaving the first stock overage in six years, with estimates ranging from 5.7 million to 9.3 million bales. He noted the usage estimates would likely be higher if not for the current high price of cotton. This has caused many textile firms and apparel brands to shift to cotton blends and other natural and synthetic fabrics in their upcoming fall 2011 and spring 2012 lines.
Devine said while prices should remain elevated in the next year, the increase in stock “could be expected to provide some relief in terms of reduced volatility.”
He cautioned, though, that even if the expectations of a bumper crop come true, “prices will still be elevated from their norms.” In addition, Devine warned that weather can wreak havoc on cotton crops and prices — such as the flooding in Bangladesh and Pakistan last year — and that “already dry conditions exist in the U.S. and China.”