From USA-ITA OFF THE CUFF for May 17, 2013
On May 14th, USA-ITA and Cotton Incorporated hosted a seminar in New York City to provide an update on the cotton market and some of Cotton Incorporated’s new initiatives in education and sustainability.
Teresa Zugay, Cotton Incorporated’s Senior Executive Account Manager for Global Supply Chain Marketing, kicked off the session with an overview of Cotton University, a free online resource for industry professionals, faculty, and students to learn more about working with cotton. In summary, the program allows you to learn, connect, and grow—and in particular, become an expert on the topics of most interest to you and your company. In addition to a wide variety of online, self-paced courses, Cotton University also offers a library of resources, forums to connect with other experts and students, and information on Cotton Incorporated’s in-person workshops. We encourage you to visit www.cottonuniversity.org to sign up—or send it along to the relevant sourcing people on your team.
Mark Messura, Cotton Incorporated’s Senior Vice President of Global Supply Chain Marketing, then provided an overview of the cotton market today. There are two things to know. First, there is stability in pricing right now. Second, there is uncertainty, especially about what’s going on in China with cotton prices.
In sharp contrast to the cotton market about a year and a half to two years ago, prices are relatively stable, with the 13-month average price hovering around 86.6 cents/pound, and prices are competitive relative to polyester.
Nonetheless, we have to keep an eye on China—as you’ll see in slide 21, the price of cotton in China is significantly higher than the price of cotton on other indices. With 70 percent of cotton consumed by China, India, the United States, and Pakistan, whatever happens in these countries can move the market significantly. In China, consumption is down 18.2 percent, which coincides with a decline in China’s competitive advantage due to labor costs and other factors. Yet, China has a huge supply of cotton reserves, which, as you can see in slide 34, have increased while mill use has decreased. The big question is how China will deal with these reserves. On January 14th, the Chinese government began a strategic reserves auction, with purchases limited to Chinese textile mills with no reselling allowed.
It’s not just China that has excess cotton. In fact, the 2013/2014 harvest will lead to the biggest inventory of cotton on the planet, ever. We could almost take a year off from growing cotton—though we won’t, because the cotton industry accounts for just too many jobs all over the world.
In conclusion, we’re seeing three trends in the cotton market:
- There is a supply-side risk, given China’s strategic cotton reserves. The reserves are increasing, yet domestic prices remain high.
- Planting is lower this year, with lower production forecasts.
- The variance in world production is dwarfed by China’s inventory.
What to do with all these cotton reserves? Consumers still love denim, and cotton products generally, but we’ve seen a huge shift in consumers’ attitudes about buying clothing. In 2008, 46% of consumers said they would rather spend their money on things other than clothes. In 2012, the number jumped to 54 percent. This number even increased among the key shopping demographic, women ages 18-34, which could be a problem.
Another issue to think about is sustainability, and how you balance people, the planet, and profit. Consumers are increasingly aware of environmental issues, especially among that aforementioned shopping demographic. Americans always lagged behind Europeans when it comes to environmental activism, but now they’re catching up, and brands should take note.
Nonetheless, while people care more about environmentally friendly clothing, it’s still not a main driver for purchasing decisions. Those drivers remain fit, comfort, quality, style, and price. In short, while you should pay attention to sustainability, you still need to pay attention to the other factors, particularly price.
People have very different attitudes about what they will eat than what they will wear or put in their home. This is especially clear when we look at “organic”—organic clothing is on the decline because people are not willing to pay two times the price for “organic” clothing, even though they are willing to pay for organic food. It’s a better marketing strategy for brands to find other ways to call out their environmental benefits—such as natural fibers, or a decrease in water or electrical use, or packaging improvements—rather than simply sell “organic” clothing.
This is where Cotton Incorporated can help you. After all, cotton is a “natural” fiber and can generally be marketed as such, which consumers like. There are many ways you can get credit for “sustainability” as there are many resources for responsible cotton, especially in the United States. For more information on this, visit http://www.cottoninc.com/sustainability/.
For more information on the fabric of our lives today, download the presentation or visit www.cottoninc.com.
