Cotton prices are soaring to new peaks, and that could mean higher prices for clothes – bad news on the inflation front.
Heavy buying from China, the world’s largest cotton importer, and weak crop yields in important producing countries such as Pakistan are fueling the move, the Financial Times reports.
December cotton futures on New York’s Intercontinental Exchange (ICE) reached a record high of 119.80 cents Friday, breaking the old mark set in 1995. On an inflation-adjusted basis, cotton prices stand at a 14-year high.
The surge already has led clothing companies Next and Levi Strauss to announce price hikes.
“We’re just seeing blow-offs here that nobody can imagine,” Herman Kohlmeyer of Michael J Nugent brokers, told the FT.
“China panics, then New York reacts to it the next day,” Peter Egli, risk manager at Plexus Cotton, a leading merchant, told the paper.
As for China, its cotton demand will rise to 10.886 million tons in the 2010-2011 season, from 10.669 million tons a year earlier, the U.S. Department of Agriculture forecast, according to Bloomberg. That will create a “severe shortage,” the USDA says.
“The Chinese have been running down their own domestic stocks,” Wayne Gordon, an analyst at Rabobank Groep, told Bloomberg.
“They’re going to have to buy at the global market to replenish that.”
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