STABLE COTTON PRICES SEEN

Byline: Scott Malone

CARY, N.C. — While the deflationary apparel climate will likely keep pressures on mills to produce low-cost fabrics, at least fabric executives don’t have to worry about dramatic increases in cotton pricing.
That was the message from economists and analysts speaking at Cotton Incorporated’s Engineered Fiber Selection System conference, which ended its three-day run here Wednesday.
Cotton Inc. also used the conference to unveil its new headquarters to textile and apparel industry officials.
While the relatively low price of cotton, which is partially helping mills to offset rising synthetic-fiber costs, is good news for textile makers, it’s not so good for the farmers Cotton Inc. represents. In his opening remarks at the meeting, James Hansen, Cotton Inc.’s chairman and owner of Hansen Ranches in Corcoran, Calif., noted that despite U.S. annual per capita cotton consumption having reached 34 pounds, demand for the fiber abroad is down.
“Stagnant global demand for cotton,” he said, “has led to larger inventories and extremely low prices.”
Keith J. Collins, chief economist at the U.S. Department of Agriculture, said the imbalance between the supply of cotton and demand is likely to persist, keeping prices down. He noted that since August, overall U.S. cotton prices have averaged 46 cents, the lowest they’ve been since the early Seventies.
Cotton production for the 1999/2000 crop year, to end in August, is expected to hit 17 million bales, he said, despite early season losses due to tornadoes and hurricanes. With U.S. mill demand expected to come to 10.1 million bales and export demand expected at 6.5 million bales, another 300,000 bales will be added to the nation’s carryover stocks.
Despite the growing cotton reserve, Collins said, the USDA expects more acreage to be devoted to cotton next year.
“As low as cotton net returns are,” he said, “a number of other crops still have lower returns.”
The USDA expects 15.6 million acres of cotton to be planted in the U.S. for the 2000-2001 crop year, which should produce 19 million bales, Collins said. The growth in supply is expected to continue to outpace demand, he added.
One event on the horizon which could help bring cotton supply and demand closer into balance would be the granting of permanent normal trade relations to China, Collins added. Farmers back the move, which Collins described as “a win for U.S. agriculture,” because access to China’s market could mean a $360 million increase in cotton exports.
That pro-China stance is quite different from the position of much of the textile industry, which has by and large opposed warmer trade relations with China.
Kay Norwood, analyst with Wachovia Securities Inc., acknowledged the differing interests of the two groups, both on China and on cotton prices, saying, “What’s good for the textile industry is not necessarily good for suppliers to the industry.”
Low cotton prices remain good news for the industry, and while the rising cost of polyester and other man-made fibers has in many cases tightened mills’ margins in the short term, Norwood contended that overall, those increases are signs of improvement in the industry.
“You would not have seen that type of increase if there hadn’t been recovery in Asia,” she said. Nonetheless, she said, raw-material costs will likely be a “neutral to negative” influence on the industry in the months ahead.
What mills should really be paying attention to, over the next few years, is the coming phaseout of textile quotas in 2005 and the likely admission of China into the World Trade Organization, Norwood said.
Textile companies need to continue to develop fabric and garment-making operations in Mexico and the Caribbean Basin, she contended.
While China could easily triple its apparel exports within a few years of joining the WTO, she said, “they will take the market share from other countries in Asia, as long as there are competitive options in the CBI and Mexico.”
But it is critical that textile companies acknowledge that this is coming — and develop low-cost operations overseas — she said.
“There are still companies hanging on and waiting for things to get better. They won’t,” said Norwood. “We may have a few good years between now and 2005. But the game changes in 2005. If you cannot be competitive now, with a considerable amount of protection, you won’t have a chance in 2005.”
Also at the event, executives toured Cotton Inc.’s new 125,053-square-foot research and development office complex.
The move to the new facility came along with some reorganization at the promotional arm of U.S. cotton growers over the past year. The company’s New York marketing offices have been downsized to focus on consumer-related promotions, and all of its product-related marketing functions have been moved to Cary.
Cotton Inc.’s president and chief executive officer, J. Berrye Worsham 3rd, said moving the company’s global product marketing staff into Cary will help the marketing and research functions work more closely together.
“Having marketing under the same roof as your research people will make it more efficient, as far as making sure that the research is being conducted with an understanding of the needs of the marketplace,” he said.
Cotton Inc.’s decision to move its headquarters followed a 1996 flood. Crabtree Creek, along which the old headquarters sat, filled that location with knee-deep water, causing $750,000 in damage. The new facility is still near Crabtree Creek, though the organization pointed out that its first-floor offices are 63 feet above the creek. The lab, on the second floor, is 77 feet above the creek.
“We don’t have any worries here. If there was a flood in our offices, that would be the least of our worries,” said Worsham. “We’d have to get the ark out.”