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HOUSTON, Feb. 18 -For the first time ever, cotton prices reached $2 per pound in New York yesterday. Increasing global demand and shrinking supplies drove the commodity to all-time highs. In the wake of global financial crisis, global consumption has begun growing again — especially for textiles and apparel. The demand for clothing and apparel naturally centers upon the world’s cheapest exporter of clothing, China, which is the world’s largest consumer and importer of cotton. The country’s apparel exports were up 34% in January.
The increasing cost of cotton, which has doubled in the last year, is threatening to drive up costs at U.S. clothing retailers and will inevitably lead to much higher clothing prices for the U.S. consumer.
Demand for cotton has outpaced supply for the last five years. Cotton supplies have been driven to their lowest level since 1993 due a to a number of production constraints, including massive flooding in Australia and Pakistan, severe droughts in Russia and parts of Europe, excessive rain in China, and export capping in India.
Prices for cotton have risen a staggering 39% so far in 2011. While cotton prices have gone parabolic over the last several months, I expect the prices to continue higher. Prices will be especially sensitive to any weather-related production declines or other export bans.
With that being said, we would certainly not be a buyer at these levels. But given the voracious global demand and current buying intensity, betting against increases in the price of cotton anytime soon could prove dangerous to your wealth.