Cotton hits fresh record high

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The price of cotton on Friday surpassed its record high on Friday, surging above $1.90 a pound amid a global shortage of the fibre.

Cotton prices have spiked 150 per cent since the start of 2010 as demand for textiles rebounded from the global financial crisis and India, the world’s second-largest exporter, restricted shipments to help its domestic textiles industry.

On Friday, the benchmark ICE March cotton contract rose 2.9 per cent to an intraday peak of $1.9263 a pound. That was the highest in the 141-year history of the New York exchange and its predecessors, and also above the price reached during the climax of the cotton embargo of the American civil war in the 1860s.

The latest price rise comes as stocks available for delivery are extraordinarily low as farmers in the US, the largest exporter, have sold almost all of last year’s crop and carryover inventories. US cotton  exports have jumped as Chinese cotton mills continue to buy on the international market, in spite of high prices.

“Demand is not being rationed sufficiently,” said analysts at Rabobank. “Mills in China are still willing to buy at current record levels, and investors see an opportunity due to the tight inventories.”

Moreover, traders are concerned that India will extend export restrictions amid sharply rising domestic prices and concerns about inflationary pressures.

Global demand for cotton will outstrip production by 1.3m bales in the marketing year to July, according to the US Department for Agriculture’s forecast this week. Certified stocks at ICE warehouses currently stand at less than 200,000 bales.

The rise in prices is putting pressure on manufacturers and retailers to pass on costs to consumers or accept lower margins. The ICE Futures US exchange last week said it was planning to force traders with large positions in cotton to prove they were economically necessary.

Higher prices could spur US farmers to plant more cotton this spring, but surging markets for corn, soyabeans and wheat could limit gains in land area, analysts say.

“The world needs a record cotton crop in 2011 just to maintain the current tight fundamentals,” Rabobank said. “An inadequate harvest would likely result in continued record highs.”

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