Cotton Prices Going Down!

Everyone will agree that this has been a long downturn and everyone is looking to see how they can make sense of the new paradigm we are facing in the world today. One interesting development that impacts our company and you is the price of cotton. Over the past year there has been a spike in the commodity price, but that seems to be abating. The material is used in a whole slew of our products and its decline over the last few months can bring back a new opportunity for you. The chart below shows the trend in cotton pricing as a raw material over the years on a monthly basis for the US. The global price in November has settled in the $0.90 to $0.94 per pound, which is the first decline below $1.00 per pound since September of 2010. And just to put things into perspective, the recent high in cotton prices is the most it has been in “real” prices since the Civil War.

http://www.cotton.org/econ/prices/monthly.cfm

In clothing production, cotton is still a major product with a high desirability. To make premium products for incentives, the higher the cotton content the better the item. The Chinese realize this trend and have started to re-stockpile the material for future use. As prices decline, perhaps to historic levels, we will see more advantages to gain wearable items at prices back to the norm. 

Perhaps, we have weathered this storm, but how did we get there? A number of facts collided like the “Perfect Storm” starting with severe flooding in Pakistan, which devastated the crop in that country. Add that to a rising internal demand for clothing products from the burgeoning middle class of China and you will see the supply quickly being scooped up locally. Finally, there is a quota system in place on raw material production worldwide, and that has not taken into effect the rise in demand and the reduction of supply. It also doesn't help that the US dollar has weakened in relation to the RMB – China's official currency. Clearly you can see the free market forces prevail with the resultant spike in prices. 

As we unwind from this situation, we can only hope that supply and demand will get back into order and prices will retreat to more normal levels. That's the trend, at least.