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The outlook for 2009 among producers if natural fibers such as wool and cotton has gone from bad to worse as brands and retailers have slashed orders in the face of a massive pullback in consumer spending.
This story first appeared in the December 30, 2008 issue of WWD. Subscribe Today.
Over the last several years, the U.S. cotton industry has seen steady declines in production as farmers increasingly devoted more of their acreage to higher-paying crops, such as corn, soy beans or almonds. The flight from cotton gained momentum throughout the year as economic conditions worsened, further increasing production surpluses and pushing cotton prices lower. A pound of cotton sold for more than 70 cents in February but had fallen as low as 37 cents a pound by November. Prices since have rebounded slightly but likely would have continued to slide if not for the intervention of several major governments.
“The recent halt in the decline in prices may be a result of governmental efforts to support prices by reducing available supply by purchasing cotton and placing it in state-controlled reserves,” said Cotton Incorporated in its monthly economic letter released on Dec. 11. “China recently announced a plan to purchase an additional 6.9 million bales of cotton [on top of the 5.6 million bales already announced]. India announced a similar plan. Combined, these two sets of purchases represent almost 20 percent of the entire world’s production in 2008-09.”
There is little optimism that these efforts will stabilize prices beyond the near term, however.
“There is mounting evidence of deterioration in emerging economies and growth estimates are being revised downward for developing countries originally believed capable of weathering the economic crisis,” said the Cotton Inc. report. “A result will be continued weakness in demand for cotton that is likely to further loosen fundamentals and result in renewed downward pressure on prices.”
Cotton production has fallen precipitously in recent years in the U.S. and abroad. According to the U.S. Department of Agriculture’s National Agricultural Statistics Service, cotton production is forecast at 13.6 million 480-pound bales this year, representing a more than 29 percent decline from the 19.2 million bales last year and a 43 percent plunge from the 23.9 million bales produced in 2005. The U.S. is the world’s third-largest cotton producer behind India and China. Worldwide, cotton production is expected to be 111.6 million 480-pound bales in 2008, compared with 122 million bales in 2006.
The American pima cotton industry is likely to see the biggest decline. Pima cotton, an extralong staple fiber significantly more expensive than conventional cotton, was priced at more than $1.26 a pound for December. The United States Department of Agriculture expects 2008 pima production to come in at 444,000 480-pound bales, down 48 percent from a peak production of 851,800 bales a year ago.
Cotton isn’t the only natural fiber facing hurdles, however. The Australian wool industry is facing challenges on several fronts, in addition to falling prices and slowing demand. Drought has prompted many farmers to sell or slaughter their sheep, and the industry continues to face considerable criticism over the practice of mulesing, which involves the surgical removal of pieces of skin around the tail of a sheep to prevent flies laying eggs in the area. An infestation, known as fly-strike, can cause the animal’s death in a matter of days.
Australian Wool Innovation, a research and development company representing the country’s wool industry, is forecasting production for the 2008-09 season of 370 million kilograms, or 815.7 million pounds, a 7.5 percent decline from last year and a 22 percent fall from the 475 million kilograms, or 1.04 billion pounds, produced in 2004. According to AWI’s forecast report for this month, production will be the lowest in Australia since the 1925-26 season and will represent the lowest sheep population in the country since 1923.
“The dry seasonal conditions and concerns about feed availability saw a further sell-off of sheep, with sheep slaughterings across Australia up 10 percent year-on-year in the September 2009 quarter,” said the AWI report. “This has meant that, with fewer sheep for shearing, production in Australia will be lower.”
The report went on to note that, while some areas of the country had received decent rainfall in recent months, it was likely to be too late to help rebuild the sheep population.
Pricing has done little to spur growth. Wool prices fell from more than $4 a pound in January to $2.25 a pound late last month.
The AWI has said it will prioritize research to help the industry eliminate mulesing by 2010. However, Wal Merriman, who was elected chairman last month, has indicated that meeting the deadline only will occur if a “viable alternative” has been rigorously tested before being introduced to the market.
Mulesing also has been a central issue in a political battle with other industry groups over the leadership of AWI. Martin Oppenheimer, chairman of the Australian Wool Growers Association, believes AWI has caved to the demands of animal rights groups such as People for the Ethical Treatment of Animals. As a result of an agreement AWI reached with PETA in June 2007, Oppenheimer believes AWI is rushing to end mulesing without considering the full impact on the health of the sheep and the cost to the industry.
Oppenheimer pointed to statements made by former AWI chairman Brian van Rooyen on Sept. 8 as examples of AWI’s mismanagement and rush to appease PETA, the main group pushing for an end to mulesing. Van Rooyen revealed that two new anti-fly-strike products had shown to be painless and left no open wound. However, it was later discovered that some of those tests were carried out on dead sheep. The AWGA alleged that AWI had failed to obtain approval to kill animals for testing and called for any AWI directors involved to step down.
The AWI declined a request for an interview.