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Downside of High Cotton Prices

Good cotton prices keep the industry spinning; high prices slow demand.

Pam Golden 1, Editor, Southern Farmer

January 26, 2011

2 Min Read

World textile demand is expected to triple in the next 10 years. The question for the cotton industry is how much of that demand will be for its natural fiber.

"Cotton has been losing market share," Allen Terhaar, executive director of Cotton Council International told growers gathered in Tifton today for the Georgia Cotton Commission's 4th Annual Meeting.

The forecast is for cotton to lose more ground because pundits don't believe production can increase enough to meet textile demand.

"I think we can," Terhaar says.

The question for Terhaar is whether price will curb cotton demand.

"We need to keep the price high enough for you the producers to make money and low enough for consumers to demand cotton," Terhaar said. He didn't venture a number range for that "happy medium," as he referred to it.

He is certain that with cotton prices triple what they were about four years ago, the work growers are doing to increase demand through their state and national checkoff programs is increasingly essential.

"We need to keep cotton in front of the consumer," Terhaar said. "We need to keep Cotton USA as the preferred cotton."

According to a theoretical pass-through price study, high cotton prices only add about 35 cents to the cost of producing a t-shirt and $1.63 to the cost of producing a pair of jeans.

Brands and retailers, however, don't agree with the study, Terhaar said. "They say this could be a game changer," Terhaar said. "This was a major tipping point."

Brand and retailers, he reported, are looking for ways to change the fiber blends they use. Rayon and polyester, two highly competitive fibers, are pushing to increase market share. Mass media outlets are publishing headlines about "terrifying" cotton prices and reporting cotton prices are raising the price of clothes. Increased costs for energy and labor aren't mentioned.

The good news is Gross Domestic Production is increasing in countries where cotton is preferred. In China, for example, Terhaar said 60% of apparel purchases are cotton items. With GDP in China on a fast track, that's a bright spot for cotton purchases.

"China's consumption could grow roughly as fast as they're GDP," Terhaar said. "That's about 10% per year."

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