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What Falling Cotton Prices Could Mean for Fashion

Apparel manufacturers are finally getting some relief from steep raw material costs, but in some cases the damage has already been done.

Cotton prices, which offer some transparency since the fiber is traded as a commodity, have ridden a rollercoaster for the past year or so. U.S. spot cotton prices averaged 87.06 cents per pound for the week ended Oct. 13, up from 85.59 cents a week earlier, but down from $1.04 over a 12-month period, according to the U.S. Department of Agriculture (USDA).

“Volatility was a feature of many markets and most benchmark prices moved sharply lower over the past month,” Cotton Incorporated senior economist Jon Devine wrote in his monthly report for October.

Devine noted that the December New York futures contract fell from levels near $1.05 in early September to those as low as 83 cents per pound in early October. The A Index, an average of global prices, dropped to $1.02 per pound from $1.24 over the past month.

Affecting prices have been shifts in supply and demand. The latest USDA report featured a decrease to world production and a larger decline in global mill-use, down 3 million bales to 115.6 million bales.

Devine said the reduction to the 2022-23 consumption estimate was paired with a 2.1 million bale decrease to mill use in 2021-22. Upward revisions for mill-use near 1 million bales for 2018-19 and 2019-20 muted the net effect on the forecast for 2022-23 world ending stocks, but the increase was still a substantial 3.1 million bales to 87.9 million.

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“If realized, this would be the largest volume for global stocks since 2019-20,” Devine said.

The global trade forecast was lowered by 1 million bales to 43.6 million. The largest updates to import figures were all negative and included those for China, Pakistan, Mexico, Turkey and Vietnam. All notable adjustments to export forecasts were also all negative, including for Australia, Brazil, India, Benin, Cote d’Ivoire and Greece.

“Price decreases over the past month indicate that demand-related concerns have been winning the contest between the competing storylines involving a weaker downstream outlook and lower production expectations in a couple of key cotton-growing countries,” Devine wrote. “In addition, while the severe weather-driven production challenges in the U.S. and Pakistan have garnered many headlines, related counterpoints concerning world production have gotten less attention.”

BLS’s Producer Price Index for U.S.-made synthetic fibers was up 0.9 percent for the month and 5.8 percent from September 2021. Prices for processed yarns and threads fell 0.4 percent last month, but were still up 26.9 percent for the year, and prices for finished fabrics were flat month to month and up 12.3 percent year to year.

Cellulosic fiber producer Lenzing credited higher fiber prices for contributing positively to its first half revenue rise of 25.2 percent year-on-year to 1.29 billion euros ($1.31 billion). However, earnings decreased 13.3 percent compared to the first half of 2021 to 188.9 million euros ($192.19 million).

This mainly reflected the cost trend in global energy and raw material markets, which affected the whole manufacturing sector. Energy, raw materials and logistics costs rose sharply once again in the reporting period, Lenzing noted.

Down the supply chain, U.S. retail apparel prices fell a seasonally adjusted 0.3 percent in September compared to August, even as the overall Consumer Price Index (CPI) rose 0.4 percent.

Women’s apparel prices declined 0.4 percent last month, topped by a decrease of 1.9 percent in outerwear, while men’s wear prices were down 1.1 percent for the month, led by a 3.3 percent drop in suits, sport coats and outerwear.

However, for some the higher prices earlier in the year caused higher ticket prices. Uniqlo parent Fast Retailing Co. said Uniqlo raised prices on fleece, down jackets and other fall and winter products in Japan to offset higher raw materials and transportation costs.

“It is impossible to keep prices unchanged in the face of a weak yen and high raw material prices,” Fast Retailing president and chairman Tadashi Yanai said at a press conference.

Looking ahead, with this month’s revisions to the demand side of the balance sheet, the increase in production is enough to result in a surplus of production beyond consumption, Devine noted. While stocks in the U.S. are forecast to be low by historical standards, an increase in warehoused supply is predicted at the world level.

“For supplies to be truly tight, not only do inventories need to be low, but there needs to be a strong enough pull from the demand side to create urgency and motivate buyers to bid up prices,” he wrote. “In the current market, U.S. stocks are low and there has been additional import demand from Pakistan. A question for the market is whether that is enough to warrant prices above current levels when the global macroeconomic outlook is deteriorating.”