Clothing is about to cost more at the store as China's rising demand drives the price of cotton to nine-year high

Clothing is about to cost more at the store as China’s rising demand drives the price of cotton to nine-year high

Cotton extended a rally to its highest price since January 2012 with crop concerns in top shipper US compounding a tighter supply scenario driven by strong demand.

Prices are up for a fifth day in New York, after jumping 4 per cent last week on speculation demand will rise in top user China. US cotton certified stock levels continued to fall after peaking in late June, signalling good export demand, said John Robinson, an economist at Texas A&M’s AgriLife Extension in College Station.

“This is a classic short squeeze for December futures, the trade is short,” said Peter Egli, the Chicago-based director for Plexus Cotton. There’s no long-term supply concern because the July 2022 futures are not showing the same strength, he said.

More gains could be in store because of a squeeze in large outstanding short positions, according to O.A. Cleveland, a Mississippi State University economics professor emeritus, and consultant. The price surged 51 per cent in the past year on two straight projected deficits.

Unfixed cotton call sales – that is, the quantity of call options on which the price hasn’t yet been fixed – are up about 69 per cent from a low in March, data from the US Commodity Futures Trading Commission show. Sellers may have to go long on futures to close their positions.

Other buyers in Turkey and Pakistan are also looking to US supplies, Cleveland said.

Short mills “failed to take advantage of a golden opportunity to fix prices” when futures dropped earlier this month, “a truly unusual price dip just because they were hoping to save 100 points,” he said. “On-call sales continue to keep a fire burning under prices.”

Cotton for December delivery rose as much as 3.9 per cent to 99.74 US cents a pound in New York, and was up 3.5 per cent as of 10:03am trading. The commodity has surged 52 per cent in the past year amid projections for two straight world deficits through 2021-22.

Heavy rains this week may threaten the quality of cotton across the Coastal Bend of Texas, and very wet conditions in the next 10 days will delay what’s already a late start to harvesting in West Texas, the biggest growing area, Maxar Technologies’ senior meteorologist Donald Keeney said by phone. Growing regions around the Mississippi Delta will also be drenched this week.

Even though costs of making clothing and T-shirts are rising, retailers will have a hard time passing expenses on to consumers, especially in the US, according to Plexus Cotton’s Egli. Discretionary spending in the US is strained due to the pandemic and wages aren’t rising, he said.

“It will be tough because it might curb demand,” Egli said.

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