Cotton prices hit a 10-year high

Points:

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

In 2011, 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 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.

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.

Expects to be hardest-hit by the rising commodity prices are those that specialize in denim. Cotton accounts for more than 90% of the raw materials used to make jeans and other denim goods.Cotton accounts for about 20% of the cost to make a pair jeans with every pair of jeans containing about two pounds of cotton.