The Impact of Soaring Cotton Prices on Consumer Apparel

Prices

Esteban Balseca International Price Program

19 Jan 2012

Cotton Prices

Soaring cotton prices

300% to 400% increases in 2 year period

Why has this sharp increase occurred?

How will it affect consumer prices?

2

Cotton Industry

Millions of people worldwide depend on cotton related activities

≈ 90 countries grow cotton

≈ 55 countries export cotton

≈ 150 countries import cotton

Despite all of this, the industry is relatively concentrated.

Over 65% of Total Production: China, India, U.S.A.

3

China

World’s largest producer

World’s largest consumer

World’s largest importer

4

Aug-July Seasons: 2007/08 2008/09 2009/10 2010/11

Production 30.91% 34.20% 31.50% 26.45%

Consumption 41.26% 39.89% 42.02% 40.28%

Imports 29.26% 22.95% 30.03% 33.61%Source: USDA

China Cotton

Relative to World Totals

India

World’s second largest exporter

World’s second largest producer

World’s second largest consumer

5

Aug-July Seasons: 2007/08 2008/09 2009/10 2010/11

Production 20.05% 21.06% 22.64% 22.03%

Consumption 15.05% 16.14% 16.64% 18.13%

Exports 19.18% 7.95% 18.54% 14.33%Source: USDA

India Cotton

Relative to World Totals

United States

World’s largest exporter

World’s third largest producer

6

Aug-July Seasons: 2007/08 2008/09 2009/10 2010/11

Production 16.04% 11.93% 12.01% 15.70%

Exports 34.78% 44.04% 33.71% 40.45%Source: USDA

US Cotton

Relative to World Totals

0

10

20

30

40

50

2007/08 2008/09 2009/10 2010/11

Exports

USA India World

7

0

20

40

60

80

100

120

140

2007/08 2008/09 2009/10 2010/11

Production

USA China India World

0

20

40

60

80

100

120

140

2007/08 2008/09 2009/10 2010/11

Consumption

China India World

Production and Consumption:

Export Prices

2008 Financial Crisis Five consecutive months of export price decreases, for a total

decline of 21% 2009 China and India governments increase purchase of local cotton Demand for U.S. exports increases Prices begin to rise

8

50

70

90

110

130

150

IPP

Ind

ex

Val

ue

s

US Cotton Exports

Export Prices

2010 Unfavorable weather conditions

India bans exports

High commodity prices

Post-recession consumption

Prices increase 153.8%

9

50

100

150

200

250

300

350

400

Dec

-09

Jan

-10

Feb

-10

Mar

-10

Ap

r-1

0

May

-10

Jun

-10

Jul-

10

Au

g-1

0

Sep

-10

Oct

-10

No

v-1

0

Dec

-10

Jan

-11

Feb

-11

Mar

-11

IPP

Ind

ex

Val

ue

s

US Cotton Exports

Export Prices

The market reacted: volumes and prices trended downward.

10

-

500

1,000

1,500

2,000

2,500

0

50

100

150

200

250

300

350

400

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

48

0 lb

bal

es

(10

00

)

IPP

Ind

ex

Val

ue

s

US Cotton Exports

Volume of U.S. Cotton Exports IPP Cotton Export Index

Import Prices

Post-recession consumption

Transportation costs linked to oil prices

Dollar vs. Yuan

Higher apparel import prices

What will the effect be on domestic apparel prices?

11

Pass-through?

China:

40% of U.S. Apparel Imports

33% of U.S. Cotton Apparel Imports

Labor markets in China

Labor accounts for 20% of textile manufacturing costs

Increased internal demand

12

Pass-through?

Consumer apparel prices have been on the rise and bear watching in the near future

13

92.0

94.0

96.0

98.0

100.0

102.0

104.0

106.0

108.0

110.0

112.0

IPP Cotton Apparel Index CPI Apparel less Footwear

Updates

14

-

500

1,000

1,500

2,000

2,500

0

50

100

150

200

250

300

350

400

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar

-09

May

-09

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

48

0 lb

bal

es

(10

00

)

IPP

Ind

ex

Val

ue

s

US Cotton Exports

IPP Cotton Export Index Volume of U.S. Cotton Exports

Prices and U.S. exports have continued to drop

Updates

15

90.0

95.0

100.0

105.0

110.0

115.0

120.0

Jun

-09

Au

g-0

9

Oct

-09

Dec

-09

Feb

-10

Ap

r-1

0

Jun

-10

Au

g-1

0

Oct

-10

Dec

-10

Feb

-11

Ap

r-1

1

Jun

-11

Au

g-1

1

Oct

-11

IPP Cotton Apparel Index CPI Apparel less Footwear

However, textile import prices have continued their upward trend and seasonally adjusted U.S. apparel prices have followed.

Contact Information

Victor Esteban Balseca Economist

International Price Program (IPP) www.bls.gov/mxp

202-691-7123 Balseca.Victor@bls.gov