Cotton Falls To 31-Month Low As Supplies Outpace Demand


Cotton futures tumbled to a 31-month low on signs that a slowing world economy will expand a surplus of the fiber, reducing costs for clothing retailers including J. Crew Group Inc. andAmerican Eagle Outfitters Inc. (AEO)

China, the world’s biggest cotton buyer, reported yesterday that non-manufacturing industries grew in May at the slowest pace in more than a year, while European leaders struggle to resolve the sovereign debt crisis. On June 1, the International Cotton Advisory Committee cut its forecast for world consumption by 0.6 percent from a month earlier.

Prices have plunged 69 percent from a record $2.197 a pound in March 2011 as output grew and demand from textile mills declined for three of the past four seasons. The prospect of weakening economic growth made cotton the biggest loser in the past year among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which touched an 18-month low today.

“The outlook for global fiber demand continues to deteriorate, and prices are following suit,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA), said in a report.

Cotton for December delivery fell 0.8 percent to settle at 67.06 cents a pound at 2:39 p.m. on ICE Futures U.S. in New York, after sliding to 64.61 cents, the lowest for a most-active contract since Oct. 13, 2009. The commodity has plunged 52 percent in the past 12 months.

Reducing Costs

Cheaper fiber may trim costs for clothing makers hurt by high cotton prices that last year were the highest ever on average.

“The commodity pressures that we’re seeing in cotton are beginning to ease,” J. Crew Group Inc. Chief Financial Officer Stuart Haselden said May 31 in a conference call with analysts. New York-based J. Crew operates 250 retail stores and 85 factory outlet locations, as well as a catalog business.

“The pressure from cotton was less in the fourth quarter as we continue to sell through higher-cost product” from inventories purchased when textile prices were higher, Scott Hurd, the comptroller of the Pittsburgh-based company, said in a May 23 conference call with analysts. American Eagle, the teen- apparel retailer with more than 1,000 stores in North America, expects lower cotton costs in the second half of the year, he said.

Declining demand may boost the global surplus to 14.46 million metric tons in the year that starts Aug. 1, 1.2 percent more than last month’s forecast and 9 percent higher than a year earlier, the International Cotton Advisory Committee said. Imports by China may drop to 3.3 million tons from a record 4.6 million tons, the Washington-based group said.

Speculators Bearish

“Cotton still has a lot of problems,” Mike Stevens, an independent trader in Mandeville,Louisiana, said in a telephone interview. “You are not going to have any bulls when there’s this surplus.”

Hedge funds and money managers have been betting prices would fall for five straight weeks, and their net-short positions on May 15 reached 13,068 futures and options, the most bearish in five years, data from the Commodity Futures Trading Commission showed.

“Demand for exports has been very weak, mainly because of the entire world situation, with the European crisis the most obvious problem,” Alan Underwood, the president of Underwood Cotton Co., an exporter in Lubbock, Texas, said in a telephone interview. The U.S. is the world’s top shipper.

Lower prices may discourage farmers from planting in the next year.

“Prices may have gone beyond the realm of fundamentals,” Keith Brown, the president of Keith Brown & Co., a broker in Moultrie, Georgia, said in a telephone interview. “This is going to affect production next year, because farmers will probably decide to plant less cotton.”