By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) — The commodities market has largely ignored the run-up in cotton prices to record levels in favor of watching gold’s impressive rally, but as retailers begin to voice concern over costs, consumers are taking notice.
Cotton prices (NY10Z 123.10, +1.42, +1.17%) have jumped by more than 50% over the last three months. They reached record levels on the ICE Futures U.S. exchange Tuesday around $1.30 per pound.
Gold (GCZ10 1,341, -1.20, -0.09%) touched a record level too, on Oct. 14 at nearly $1,378 an ounce on Comex, though its 15% three-month gain pales in comparison to cotton’s.
Shrinking supplies and rising demand worldwide have contributed to cotton’s strength over the past several months.
“About three months ago, the market finally woke up to the fact that the stocks in China weren’t really there,” said Peter Egli, director of risk management at Plexus Cotton Ltd., suggesting that U.S. Department of Agriculture data didn’t accurately reflect Chinese stockpiles at the time.
That realization “set the Chinese market on fire, and New York futures then followed suit,” he said.
Mills worldwide are now trying “desperately” to secure commitments for coverage, said Mike Stevens, veteran cotton trader and analyst in Mandeville, La., adding that the U.S. is the prime recipient of the demand from the mills.
As a result, consumers may see “modest price hikes in all garments that are primarily cotton,” including jeans and T-shirts, he said.
Consumers beware
Retailers are already starting to feel the pinch from the tight supplies and higher cotton costs.
Levi Strauss & Co., for one, announced “selective price increases” for Spring 2011, citing the rise in cotton prices as one of the contributing factors, according to a company spokeswoman.
“We’ll continue to monitor pricing inputs and take appropriate action where necessary,” she said.
But the company contracts for fabric and finished products in advance, she said. “Any pricing changes in the marketplace would not be visible to consumers until roughly 6-12 months later.”
So far this year, the cotton issues haven’t yet impacted Levi Strauss, according to comments at an Oct. 12 earnings call with company president and chief executive officer, John Anderson.
Levi Strauss “brought out a combination of new products, repositioned the price on some existing products, but suffice to say that year-to-date, as we look through 2010, the cotton issue hasn’t impacted us,” he said, when asked how much his company has raised prices. “It’s more looking forward, where we’re going to have to review the impact of that on some of our future lines.”
And when asked if he had any sense that his peer group would also be raising prices, Anderson responded: “All I can say is that everybody is going to be paying a higher price for cotton.”
Through September, U.S. retail consumer price index data were not showing any appreciable change in apparel prices, said Gary Adams, vice president for economics & policy analysis at the National Cotton Council. “This may, in part, reflect the time delay from the pricing of cotton by a textile mill and the eventual sales of that product on a retail shelf.”
Terry Townsend, executive director at the International Cotton Advisory Committee (ICAC), said that “clothing manufacturers may start feeling the brunt of those higher prices in early 2011 and through the year, as cotton sold at current prices are shipped to textile mills.”
