Cotton prices are on the rise, trading at the highest level in more than two years, according to published reports. The increase has been attributed to a strengthening economy and increased demand in the face of low supplies of the crop, which the U.S. Agriculture Department expects will hit a 23-year low this summer. Cotton for July delivery was trading at 94.32 cents a pound at the end of last week on ICE Futures U.S., the highest closing price since February 2012. Prices have risen for three consecutive weeks, and are up 11% for the year.
Many investors, however, don’t believe the increase is sustainable. Higher cotton prices will likely lead U.S. farmers to plant a bigger crop for next year, and many clothing makers will turn to cheaper, synthetic substitutes like polyester, creating a glut in the market.
Suppliers say the current upward trend in cotton shouldn’t have an immediate effect on apparel prices, both in the retail and advertising specialty world, since manufacturers secure raw materials well in advance of production.
“We do keep close track of price fluctuations and are always looking at alternatives that meet our same high quality standards, should raw material prices change significantly,” says Shelley Foland, CEO of Boxercraft (asi/41325), known in particular for its flannel loungewear. “Boxercraft is committed to providing the best possible fabric options for our customers. Raising our prices is always the last option, and we would think carefully before we do that, as we strongly believe in providing strong value.”
Richard A. Noll, CEO of HanesBrands, the parent company if industry apparel supplier Hanes/Champion (asi/59528), told The Wall Street Journal recently that the company had already locked in its commodity costs for nearly the whole of 2014.