Cotton prices reach historic highs

The all-American T-shirt-and-jeans combo will soon cost consumers more, thanks to rising cotton prices.

Out this month, a federal government report showed global cotton production will be even lower than previously stated. Cotton has more than doubled in price during the past year, reaching all-time highs. Yesterday, May 2011 cotton futureshurdled the $2-a-pound mark.

What does this mean to you? Businesses that rely on the crop to produce their products are poised to pass along their biggest price increases during the second half of 2011.

Several factors account for the shortage. Spurred by a turnaround in the global economy, manufacturers now require more cotton to meet increased demand. Also, adverse weather conditions throughout India, Australia, and Pakistan have damaged cotton crops, leaving textile mills with fewer options.

Cotton farming is a global business. China is the largest grower of cotton (36 million bales on average), followed by India (23.1 million bales), and the US (17.9 million bales). Texas, alone, produced some 6.2 million of the nation’s bales. To put things in perspective, one 500-pound bale of cotton can make 1,217 men’s T-shirts.

Apparel manufacturers, specifically, are keeping a close eye on cotton production. Longtime maker of iconic blue jeans, Levi Strauss & Co. noted in its February 2011 annual filing that, “continued increases in raw material costs, unless sufficiently offset with our pricing actions, might cause a decrease in our profitability.” Other apparel companies that plan to pass along price increases include V.F. Corporation, J. C. Penney Company, and NIKE.

Hanesbrands, spun off by cheesecake maker Sara Lee Corporation in 2006, still wants to get its Hanes on you, but only if you dig into your pockets a little deeper. The manufacturer of unmentionables is planning to raise prices to continue posting profits. In the company’sFebruary 16, 2011, annual filing, Hanesbrands is clearly concerned about logging higher cost of sales in 2011:

“Rising demand for cotton resulting from the economic recovery, weather-related supply disruptions, significant declines in U.S. inventory and a sharp rise in the futures market for cotton caused cotton prices to surge upward during 2010 and early 2011. After taking into consideration the cotton costs currently in our finished goods inventory and cotton prices we have locked in through October, we expect an average for cotton of at least $1.00 per pound in 2011 for purchases of cotton used in goods manufactured by us, which would have a negative impact of ranging from $100 to $125 million when compared to 2010.”

Yes, it’s somewhat depressing that your T-shirts, jeans, socks, and underwear will be considered more than “the basics” when it comes to your budget.

In the meantime, while cotton clothing goes upscale, the industry’s US marketing mouthpiece Cotton Incorporated is busy touting the benefits of cotton through its years-old ad campaign, “The Fabric of Our Lives.” TV ads now tap the musical talents of sexy sirensLeona Lewis and Colbie Caillat to spread the word of cotton as the ultimate fabric.  It remains to be seen, however, if these beautiful women’s ads are enough to make men pay more for their BVDs.

(Source: http://www.bizmology.com/2011/02/18/cotton-prices-reach-historical-highs/)