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  • MAP Asia Pacific Ltd

Cotton prices just hit a 10-year high. Here’s what that means for retailers and consumers

The last time cotton prices were this high, it was July 2011.

“In 2011, we needed a prayer meeting,” Levi Strauss Chief Executive Chip Bergh told investors on an earnings call Wednesday.

Bergh recalled how he had just joined the denim retailer and was learning his way around Levi’s business. But he was also staring down a historic surge in cotton prices. Cotton had skyrocketed above $2 a pound, as demand for textiles rebounded from a global financial crisis, while India — a major cotton exporter — was restricting shipments to help its domestic partners.

The price of a cotton T-shirt rose about $1.50 to $2, on average, National Retail Federation Chief Economist Jack Kleinhenz said. Consumers felt the impact. And it also ate into companies’ profits.

Bergh sits in the camp with analysts and experts who say the current cotton price inflation will be less damaging to the industry. Manufacturers and retailers have pricing power. Companies will be able to pass along the higher costs without destroying consumer demand.

“It’s a very different situation today,” Bergh explained. “We’ve been able to take pricing over the last 12 months and it’s sticking. ... We priced ahead of some of these inflationary pressures hitting us.”

Cotton prices surged to a 10-year high on Friday, reaching $1.16 per pound and touching levels not seen since July 7, 2011. The price of the commodity rose roughly 6% this week, and is up 47% year to date. Analysts note that gains are being intensified further from traders rushing to cover their short positions.

The runup stems from a number of factors. Last December, the Trump administration blocked companies in the United States from importing cotton and other cotton products that originated in China’s Western Xinjiang region over concerns it was being produced using forced labor by the Uyghur ethnic group. The ruling, which has remained in place during the Biden administration, has now forced Chinese companies to buy cotton from the U.S., manufacture goods with that cotton in China, and then sell it back to the U.S.

Extreme weather, including droughts and heat waves, have also wiped out cotton crops across the U.S., which is the biggest exporter of the commodity in the world. In India, deficient monsoon rains threaten to hurt the country’s cotton output.

The dynamic has already pressured shares of HanesBrands, an apparel manufacturer known for its undergarments and cotton T-shirts. Historically, HanesBrands shares fall as cotton prices rise. The stock tumbled 7% over the past week. On Friday alone, shares shed 5% to close at $16.23.



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