Cotton Edges Closer to an All-Time High


Cotton prices flirted with an all-time high after prospects for additional supplies from India unraveled.

A panel of bureaucrats in India, the world’s second-largest producer, Thursday recommended that the government maintain its current export cap of 5.5 million bales. The decision comes despite estimates India will harvest a bumper crop of 32.9 million bales through September, a 12% increase.

Cotton for March delivery rose 3.9% to settle at $1.8758 a pound on ICE Futures U.S., just shy of the $1.89 record hit during the Civil War. Prices surged the exchange-permitted daily limit of seven cents a pound.

The run-up was largely attributed to speculative buying, not the textile industry.

“I cannot say this clearly enough: this is not mill buying,” said Sharon Johnson, a senior cotton analyst at Penson Futures. “Mills cannot buy at these prices. The vast majority has already done what they need to do.”

However, textile mills may need to re-enter the market soon to nail down prices for their purchase contracts.

Mills that built cotton “on call,” without fixing the price, must do so by Feb. 18, the last trading day before the March contract’s first notice day. When mills fix prices, cotton merchants will buy back the short contracts they used to hedge their risk and thus push up prices.

Mills were caught off guard by the strong rally in cotton prices. “They have all been waiting and waiting for cheaper prices,” said Allen Underwood, president of Underwood Cotton Co., a merchant in Lubbock, Texas.

As of Feb. 4, there were 15,884 cotton contracts left unfixed, compared with 4,353 contracts in the same week last year and the highest number since 2001, when the Commodity Futures Trading Commission started reporting the data.

New Delhi is reviewing its export plans for the current harvest. India’s textile industry has been putting pressure on the government as cotton prices have risen.

A strong cotton-export report from the U.S. Department of Agriculture supported the surge in futures prices.

“It’s like a runaway freight train right now,” said independent cotton analyst Mike Stevens.

Heavy rains in India, Pakistan and Australia along with searing global demand have kept prices high, defying forecasts of a sharp selloff of cotton, after prices surged late last year.

Cotton prices are up nearly 30% this year.

Apparel companies are feeling the pinch from higher fiber prices. Retailers such as Hanesbrands Inc., Jones Group Inc. and Polo Ralph Lauren Corp. have announced price increases because of the rising fiber costs.

But prices for consumers may rise even further later this year. Because of the six-month turnaround from harvest to garment fabrication, much of the cotton used in clothing sold today was priced around $0.85 a pound, less than half the current price.

—Carolyn Cui in New York and Banikinkar Pattanayak in New Delhi contributed to this article. h


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