Cotton Price Tendency Since 2020
From October 1st, 2021, International cotton futures prices have soared by more than 20%, reaching $1.13 per pound this week, the highest level since 2011.
The Reason of Raising Cotton Price
The United States is the world’s largest exporter of cotton. Industry website TradingEconomics.com reported that heavy rains are threatening cotton crops in major growing areas in the United States such as Texas, and a pest called pink bollworm “is rapidly spreading to all areas.” Prior to this, drought and heat waves have also affected the cotton crops of this world’s major cotton exporting country. India and China have also encountered this challenge.
The cotton rise was affected by multiple factors, mainly due to the imbalance between supply and demand. Domestically, due to the decline of cotton planting area and weather factors, the global cotton supply has also been affected by factors such as El Niño weather. Production has also been reduced. Overlapping shipping logistics is blocked and ocean freight prices have risen, causing the cost of cotton trade to rise sharply. At the same time, cotton farmers are gradually reluctant to sell and wait and see, and behaviors such as rush to collect and hoard and speculation have also helped to increase cotton prices.
The Effect of Increasing Cotton Price
Higher cotton prices will undoubtedly mean that the cost of manufacturing clothing will raise further, which also makes investors in many clothing companies unhappy. Apparel companies are already facing many supply chain and cost issues such as shortage of containers, shutdown of Vietnamese factories, and rising labor and transportation costs.
Analysts pointed out that in addition to clothing, the price increase caused by the rise in cotton prices may also be reflected in other areas, including: towels, bed sheets and cloth bags.
When cotton prices experienced a historic surge in 2011, it eroded the gross margins and profitability of some well-known clothing companies that year and the following year. The gross margin of jeans manufacturer Levi Strauss & Co. dropped by 2.2 percentage points that year. Clothing retailers Gap Inc.’s gross profit margin fell by 3.8 percentage points.
In the past month, with the rise in cotton prices, the share prices of these two apparel companies have fallen under pressure.