Cotton Has Best Quarter in 10 Years as China Snaps Up U.S. Fiber
(Bloomberg) -- Cotton futures rose to the highest in almost a decade, with poor weather hurting crops around the world and unrelenting demand for fiber from the U.S., the top shipper.
Prices have climbed 20% this quarter, the most since March 2011. That’s signaling higher costs for apparel as manufacturers respond to hikes in raw-materials, adding to inflationary pressures rippling through the global economy this year.
Despite the rally, demand for American cotton isn’t slowing down. China is snapping up U.S. exports amid a cool-down from Brazil, the second-largest shipper, according to a Rabobank International report. The U.S. Department of Agriculture, which projects two world deficits through this season, may need to increase its estimates for world consumption, the report said.
In New York, the December contract jumped as much as 4% to $1.0403 a pound. Gains have also been intensified by traders rushing to cover short positions.
Prices could top out around $1.12 a pound, said Jordan Lea, senior trader for DECA Global LLC, a textile supplier. While current shipping disruptions are frustrating, a decade ago when prices rose to a record, world reserves were half of what they are now.
To be sure, there’s no inventory for immediate delivery, and so far the higher prices haven’t affected demand, Lea said. If prices rise further or shipping snags prevent Asian consumers like Vietnam or Bangladesh from getting the cotton they need, they may turn to polyester to make up for the lack of cotton, he said.
In other soft commodities, arabica coffee fell 1.6% to $1.941 a pound, heading for the second drop this week. The beans used by brands such as Nestle SA’s Nespresso are still up 22% this quarter, and 51% for the year after droughts and frost slashed prospects in top-grower Brazil and amid shipping headwinds.
The weather market has kept coffee prices supported this month, but there may be signs of a shift in Brazil, according to Rabobank. Forecasts are “showing good volumes of rainfall in areas previously missed,” the report said.
Rising energy costs, logistics issues and inflationary concerns could curtail consumption in the fourth quarter, and current prices could spur demand destruction, the bank said.
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