As Cotton Prices Approach 15-Year High, Clothing Prices May Increase

The oft-ignored U.S. cotton market has been steadily gaining ground, and today cotton prices are nearing heights not seen in the last 15 years.

Natural disasters in top cotton-producing countries, coupled with an increase in demand for the commodity and a record crop year, spell good news for American cotton farmers. On Friday, the price per bale for December delivery hit $85 -- up from a $75 per bale price last month.

"The mills are screaming for cotton," said Mike Stevens, a cotton analyst and trader based in Manderville, La. "No doubt about it, it's a bull market for cotton. Prices have absolutely exploded."

The U.S. is the third largest producer of cotton in the world, next to China and India. Coming in at fourth is Pakistan, whose crops have been wiped out due to flooding. Last week, the U.S. Department of Agriculture World Agricultural Supply and Demand Estimates said cotton losses in Pakistan will reach 700,000 bales.

Another top producer, Russia, has been hit with fires and drought conditions.

Then there's an increase in global consumption. For the fifth straight year, production of the commodity will not keep up with demand, according to the USDA.

Both VF Corp. (VFC) -- a clothing giant whose brands include Lee, Wrangler, Rustler -- and jean maker Levi Strauss are expected to increase sales increases this year.

The U.S. cotton industry accounts for more than $25 billion in products and services annually, creating about 200,000 jobs in industry sectors from farms to textile mills. This year, the USDA projects the U.S. will produce 18.5 million bales of cotton, up from 12 million last year. About 85% of U.S. cotton is exported.

U.S. stockpiles totaled 3.1 million bales on July 31, the lowest level since 1996, USDA reported. China is already making deep forays into its reserves.

While higher prices are good news for farmers, that may mean consumers will pay more for T-shirts and jeans.
Traders and VF's CEO Eric Wiseman said the rally in cotton may subside in September, given the strong crop expected this year.

"History tells us that more often times than not, if an early season rally gets out of hand, we wind up having to deal with much sharper corrections that are considerably more difficult to deal with," Stevens said. "At some time in the next few months the pipeline will begin to refill, and prices will level off."