No inflation, haha!!! Cotton prices highest since the Civil War!!!!!!!!!!

Discussion in 'Economics' started by S2007S, Oct 27, 2010.

  1. S2007S


    Right no inflation, who are these fools kidding!! This is just going to get worse.

    US News

    Cotton Prices Highest Since US Civil War | October 27, 2010 | 11:06 AM EDT
    There's been so much talk about rising commodity prices that we decided to pick one that isn't front-page news like oil and gold, yet could have a significant impact on the consumer and investors.

    How about cotton.

    It's at pricing levels not seen since just after the Civil War, spiking about 80 percent since the early summer. Considering that just about everyone wears a lot of it every day, we traveled to the cotton heartland of Tennessee to get more insight.

    "It's really been amazing," said Howell Moore, who runs a cotton-growing and gin operation in Sommerville, Tenn. "We haven't seen anything like this. I have seen it take a couple of runs before in my life, but nothing like this. It doesn't seem to have an end to it."

    Moore says most growers haven't capitalized on the rally up to the $1.30-a-pound range, since most 2010 pricing was locked in well in advance. However, if prices remain high, that will change.

    "I think we will have good prices going forward," he said. "I think it will be close to a dollar—92 cents to a dollar—but I don't think we'll see these prices (very) long."

    Analysts say several factors are involved in this historic move, and the macro picture for cotton is more complex than a simple weak dollar, strong commodity play. Global demand is up, supply is extremely tight, and weather has been a major factor all across the globe.

    "It seems that all the fundamentals are bullish from Texas storms late last week to China weather to Pakistan import issues—and India the same," said Roger Corrado of Spectron Commodity Futures. "Everything just points to high prices in cotton, and it's basically unchartered territory."

    As for when the commodity market pricing will translate into higher retail prices, that's unchartered territory as well. Companies like Hanesbrands [ HBI_26.24_ -0.90 (-3.32%) ], which reports earnings on Wednesday, have come into focus since so many of its products are entirely derived from cotton.

    "Late spring and into the fall of next year, you are going to price increases not just from companies like Hanes and brands like Hanes, but kind of throughout the industry," said Omar Saad, Credit Suisse's [ CS_41.71_ +0.28 (+0.68%) ] Apparel and Footwear analyst.

    That's a significant lag time, but in terms of potential inflation harbingers, this could be a clear one. And although it might be stating the obvious, a lot of cotton goes into products used by every single human on earth, every day—ranging from t-shirts to blue jeans.

    In fact, here are some interesting numbers about what is made from a bale of cotton (approximately 500 pounds), courtesy of the National Cotton Council of America. A bale produces 215 pairs of jeans. The rectangle mass of cotton can also be used for 249 bed sheets, 2,104 pairs of boxer shorts, 1,217 t-shirts or 765 men's dress shirts.

    From the numbers, it certainly seems like the price of your new jeans is about to go up.

    "The large companies with scale in their manufacturing, who have a very diversified vendor base and supply chain, are going to be able to manage through this much better than small companies that have a concentrated supply base who don't have a lot of negotiating power, who don't have a lot of leverage with the supply chain," Saad says.

    Most analysts also tell CNBC that retailers and manufacturers may attempt to pass along costs a lot sooner in order to protect margins and corporate profits. Much like the impact of impending food inflation reported by the USDA earlier this week, rising costs will either be absorbed by consumers in the form of higher prices, or absorbed by shareholders in the form of lower profits.
  2. Pekelo


    I bet pretty much everything's cost is the highest since the Civil War...

    What was the price of a loaf of bread, like 5 cents? How about a suit, 4 dollars???
  3. Jimmy Rogers called it years ago...

    Buy cotton. It's going to the moon.

    Should have listened...
  4. :p :D

    If the $USD keeps going down sure commodities are going to be high, but its not due to demand since there is almost no money velocity out there.
  5. The reason there is a cotton price rise is because of the environmental situation not the economy. Although that will play a part in the future.
  6. +1

    OP does not understand this concept. His exclamation marks don't make his threads any more important or useful.
  7. How to make the transition to farming? I want to become a farmer
  8. S2007S


    Gap, Wal-Mart Clothing Costs Rise on `Terrifying' Cotton Prices
    By Bloomberg News - Nov 15, 2010 8:48 PM ET

    Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs.

    “It’s a little terrifying to deal with cotton suppliers now,” said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.

    Cotton futures in China have surged more than 70 percent this year and were at a record earlier as the global economy emerged from recession, allowing people to spend more on clothes. Production of the fiber in China, the world’s biggest user and importer, is forecast to lag behind demand for a 12th year, cutting its stockpile to the smallest since 1995, according to the U.S. Department of Agriculture.

    “American consumers better get used to rising prices on the shelves of Wal-Mart and other retailers,” said Jessica Lo, Shanghai-based managing director at China Market Research Group. “China’s manufacturers are getting squeezed not only by rising cotton costs but also soaring real estate and labor costs.”

    John Ermatinger, Gap’s Asia president, declined to say whether it would raise prices. “We are going to be mindful of our competition,” he said in a Nov. 10 interview in Shanghai. “We are going to be mindful of our consumer. That’s how we’ll ultimately establish our prices.”

    Shandong Zaozhuang Tianlong Knitting Co., which makes Polo Ralph Lauren Corp. T-shirts and track suits for Le Coq Sportif Holding SA, has raised prices as much as 70 percent from a year earlier, said sales manager Fred Hu. “If cotton keeps rising like this, we will need to lift prices by 30 percent by the Spring Festival next year or we lose money.”

    T-Shirt Price Increase

    Closely held Tianlong ships 80 million yuan of clothes to Europe, North America and Japan annually, and raised the price of T-shirts it sells to Ralph Lauren to $4 each, from $3.20 in July, he said.

    Unitedtex, which sells $24 million worth of shirts and jackets annually to Gap, plans to raise prices by 5 percent to 30 percent for products that will be available in April, Wu said in an interview. The supplier plans to increase capacity to meet the retailer’s demand, she said.

    “It’s very hard to budget for input cost, if prices are as volatile as they are,” said Peter Rizzo, Sydney-based managing director at FCStone Australia Pty. "It heightens the awareness of Chinese textile manufacturers to look at risk-management tools.’’

    Cotton-silk blend fabric has surged about 70 percent to approximately $2.3 a yard since July and prices are now quoted on a daily basis, manufacturing executives Wu and Hu said.

    One-Week Pricing

    “We can give clients a price now, but it will only be valid for a week,” said Tianlong’s Hu.

    Some manufacturers aren’t taking orders for next year because of fluctuating cotton prices, J.C. Penney Chief Executive Officer Myron Ullman said Nov. 12.

    “If cotton goes up 50% or 70%, or wherever it lands, there will be an impact on pricing that everybody in our industry is going to feel, but our objective is to have a competitive advantage, particularly on key price points the customer would expect us to maintain,” he said.

    China’s demand for cotton outstripped domestic production by 3.6 million metric tons in 2009 to 2010, widening a supply deficit, the China Cotton Association said Sept. 27.

    Cotton production in China, forecast to consume about 41 percent of the global harvest, may lag behind demand by 17 million bales in the year that began Aug. 1, according to the USDA. That’s more than enough to make a pair of jeans for every person in China and India, according to Bloomberg calculations and data on the National Cotton Council of America’s website.

    Crimped Margins

    Clothes makers are beginning to lose money on some orders, Unitedtex’s Wu said. “Even if we know we’ll lose money with this order, we’ll still do it, hoping to make up the loss in the next deal,” she said.

    Gross margins for clothing retailers’ suppliers are between 10 and 20 percent, and net margin is usually between 3 percent and 5 percent, according to Wu and Hu.

    Zhejiang province-based Ningbo Seduno Group, which sells about $30 million worth of men’s and women’s clothes to Hennes & Mauritz AB annually, increased prices by almost 20 percent since July, said sales manager Fiona Xu. Seduno also supplies Adidas AG, Inditex SA’s Zara and Nike Inc.’s Umbro Plc, and will keep raising prices as cotton costs increase, Xu said.

    H&M Monitoring

    “H&M is constantly monitoring the price of cotton and other costs,” said spokeswoman Jenni Tapper-Ho, who wouldn’t comment on whether it would raise prices.

    Adidas sees a “limited impact” from cotton prices, said spokeswoman Katja Schreiber.

    Zhejiang Datu Garments Co Ltd., which shipped $4 million worth of pullovers to Wal-Mart Stores Inc. last year, raised prices to $9 a piece from $7.50 in August, said sales manager Bella Weng. Wal-Mart spokesman Kevin Gardner declined to comment.

    Zhejiang-based Datu plans to further raise prices by 20 percent to 30 percent, she said earlier this month at her Canton Fair booth, which was filled with polo shirts and pullovers that she said were made for Wal-Mart.

    “We’ve been holding up fairly well even with the yuan rising,” Tianlong’s Hu said. “Cotton prices are just more unpredictable. We’re facing a real test.”