Finally,Cotton May Have Peaked!

Latest word on cotton futures pricing is that it has levelled off with anticipation of declines through December. Plantings are up worldwide and, barring natural catastophies, blight or aliens absconding with the new crop it is anticipated supply will increase enough to impact pricing. For the first time in 10 months we were able to purchase yarns at the same price as the previous month. Although incredibly high, at least it was not another double digit increase. Be advised that our buying position is short, as we wish to pass on any price drops as quickly as possible. To do so, we must minimize inventories and jeapordize deliveries. We normally carry 7-10 weeks of finished goods inventories, but currently have targeted 5-6 weeks. This is particularly difficult with yarn deliveries being spotty and finisher schedules running short time due to lack of demand. As is usually the case, expect prices to drop much more slowly than they rose. We are hoping to begin trimming surcharges late in the third quarter (September) as we work through more expensive inventories. Stay tuned for future postings!

Branded Apparel Made in India to Increase 25%

In their latest move, the government of India has enacted a 10% excise tax on exported branded apparel. Combined with the ongoing increasing cotton prices it is anticipated that the overall effect will be in the neighborhood of 25%. Additionally, the government has passed a new minimum wage increase of 15% which took effect February 1st 2011.

Domestically, we continue to see increases on a monthly basis on the cost of cotton yarns. The basic count of 18/1 100% cotton open end yarn is now quoting in the $2.35 range (compared to $1.02 last year). The finer counts in ring spun , especially organics, have increased at a more rapid rate. 30/1 organic was $1.85 last year and is now being quoted north of $3.70 a pound. Compounding these ongoing increases in cotton are freight and energy surcharges as gasoline and heating oil march northward. There is also word that companies are maxing out their credit limits as factors watch the trade with nervous oversight. This is resulting in a tightening of inventory levels as more dollars buy less and less pounds.

Another area to watch is quality, as cotton fiber becomes more difficult to procure. Inevitably, fiber that was once set aside for lesser products will be finding its way into higher channels. Issues with barre, contamination and color may begin to become more prominant.

Cotton hits $2 a pound, Chinese minimum wage rises

For the first time in history cotton fiber reached $2 a pound in active markets. This is an increase of another 12% since last month. In the meantime, India announced it will not export any cotton this year, severely impacting Pakistans effort to boost supply and causing Pakistan to announce it will be seeking an additional 2 million bales to cover its internal domestic needs through June. China is experiencing the worst loss of labor in decades, with nearly 50% of factory workers not coming back to work after the Chinese New Year. This is due to increased urbanization in rural areas (creating jobs closer to home) and a shift from low margin, low value products (textiles) to higher margin products like electronics and pharmaceuticals. In an effort to woo them back, China announced an increase in the minimum wage. This will inevitably lead to higher costs of Chinese apparel imports.

Chinese Hoarding - The Latest Price Stimulus

Reports from China tell of warehouses full of cotton, and many independant farmers filling their shacks and outbuildings with fiber in anticipation of even higher prices. With nearly 25 million Chinese cotton farmers, it is estimated that as much as 9% of the worlds supply is being held back.

In other news, Hanesbrand has announced an impending increase to offset lower revenues of single digit to up to 30% on certain products.

Cotton Soars to New Records as Chinese Demand Surges

Chinese imports rose an astounding 86% in 2010 with record demand from the textile sector and a diminished cotton crop due to weather issues. Cotton settled at an all time high of nearly $1.62 a pound, climbing 11% in the past week (compare to last years price of $.52/lb). The US Dept of Agriculture reduced its estimated output while also increasing its estimated consumption forecast. The same held true with Indias Southern India Mills Association , which reported a reduction in production and increases in consumption estimates. Global inventories are at the weakest seen since 1995-1996, and hoarding is becoming prevelant with speculators.

PLAN AHEAD- Procure inventory now!

Yesterday, I ordered more yarn to replenish inventories. To my chagrin, I fond prices have escalated yet another 18% since last months purchases. I spoke with several people close to the supply chain and all are concerned about outages late in the third quarter. It is also expected that prices will continue to escalate. Although Style Source does run a stock inventory position the cost of that inventory has risen close to 70%. This means that capitalization of inventory and carrying costs have risen accordingly. Although it makes some sense to increase inventory position in greige goods to ameliorate the possible shortages later in the year we must watch our spending and where cash is tied up to insure liquidity. Thus, we are HIGHLY recommending to our customers they consider funding dedicated greige goods inventories as insurance for supply for the second half of 2011. We will strive to maintain a strong stock position in all fabrics, but all it takes are several larger unplanned orders to create a short term shortage that may take much longer to replenish. We are all in this together, and, as yor supplier and partner, are doing all we can to communicate the urgency of this situation. Google some articles on "cotton shortage" or cotton fiber prices" to educate yourself and make decisions that will insure your success in 2011!

Cotton Yarn Costs Continue to Increase- Now its Australia!

Although cotton fiber prices appeared to have plateaued last month the ongoing concerns over availability have forced prices ever higher. The floods in Australia have wiped out their crop, and India put a freeze on exports at the end of 2010 and has yet to lift it. To give you an idea on how prices have changed, we were paying $1.77 a pound for 30/1 combed ring spun yarn last year. Four months ago we were paying $2.35, last month we paid $2.70, and today I was quoted $2.95. That is a 67% increase. Yarn makes up about 65% of fabric cost and fabric cost makes up about 45-55% of a garments cost (variability due to the vast differences in labor between garment types). Another example is a basic 18/1 100% cotton open end yarn. Last year $1.00/lb, now $1.95/lb., a 95% increase. Our current surcharge on catalog pricing is 10%. For custom programs that have repeat styles from last year we are recosting as orders are placed. We highly recommend you inquire about the impact on your pricing while planning your coming season.