# Cotton Prices: A technical look



## BroJames (Jul 8, 2008)

I used to be a technical analyst. So what better way to look at the rising cotton prices. I think we are looking at a 15 year high.


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## veedub3 (Mar 29, 2007)

yes we are at an all time high, analyst are estimating that the cost will be back to normal by September 2011. I am doubtful.


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## PositiveDave (Dec 1, 2008)

What proportion of the tshirt is related to cotton prices rather than labour?


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## thutch15 (Sep 8, 2008)

That is the trend for most commodities... maybe not quite as extreme.


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## BroJames (Jul 8, 2008)

The most labor intensive part is the harvest. At the cotton mill, the loading and baling. When the bales reaches the spinning mills everything is pretty much automatic.

Are the any elliott wave theorists out there? I am not, but seem to see higher prices. I earlier thought it was 15 year highs (Sorry, I am not updated on commodity prices). We are looking at 140 year highs(since 1870). Of course the dollar has much more purchasing power back then.


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## thutch15 (Sep 8, 2008)

BroJames said:


> The most labor intensive part is the harvest. At the cotton mill, the loading and baling. When the bales reaches the spinning mills everything is pretty much automatic.
> 
> Are the any elliott wave theorists out there? I am not, but seem to see higher prices. I earlier thought it was 15 year highs (Sorry, I am not updated on commodity prices). We are looking at 140 year highs(since 1870). Of course the dollar has much more purchasing power back then.


What do you think about Gold and Silver? I just made a note to myself last night to remind me to check today. I am extremely interested in shorting both.


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## binki (Jul 16, 2006)

There was a news report that cotton was being horded in China thus driving the price up even more. 

As for the shirts the earthquake in Haiti has shut down a mfg plant. 

Labor should not be a large cost component of cotton, it is more likely transportation. The prices today reflect a shortage of both refining and manufacturing capacity that is available.


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## brokenviewfinder (Feb 3, 2010)

Huummff. Grrr. I do know that my best wholesaler has gone up at least $0.50 per piece (on average) on my favorite blanks. I've got to revisit my markup. But why do 50/50's still seem more expensive? I would think it would bring prices more inline with 100% cotton?


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## brice (Mar 10, 2010)

Where is the majority of cotton harvested and processed to prepare it for more refined manufacturing.


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## PositiveDave (Dec 1, 2008)

Well Egypt grows a lot of cotton...ooops.


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## DaveG (Aug 3, 2009)

brice said:


> Where is the majority of cotton harvested and processed to prepare it for more refined manufacturing.


China and the US are the two largest producers of cotton in the world, and together produce almost 50%. Add India and Pakistan into the mix, and that accounts for roughly 75% of the world's production. 


Cotton production statistics - countries compared - NationMaster

A general rule for agricultural products is that the majority of processing is done as close to the production areas as possible, since freight costs are more easily absorbed into higher value products than into raw materials.


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## brice (Mar 10, 2010)

Well there goes my theory of Chinese influence on the market. Seems to me that given our production volumes in the US we should be able to maintain some level of reasonable controls and therefore not be too directly influenced by foreign markets.


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## DaveG (Aug 3, 2009)

Due to the nature of agricultural commodities, (non-branded, homogeneous products from a HUGE number of suppliers with a large number of consumers) a very small change in supply can trigger a disproportionate change in price. 

This causes a huge spike in prices when there is a relatively small reduction in supply! Unfortunately for the consumers, this also causes a movement in the prices of substitute products, such as wool and polyester in this case. (since the price of petroleum is elevated, that in itself helped to raise the prices of cotton, though not because of it's effect of an input, but because polyester and cotton are substitutes!) 

My prediction:

As farmers the world over plant cotton like crazy to try to get some action in the high cotton market, they will produce about 5-10% more cotton than is needed, and the price to the farmer will drop like a rock (30-50%). The end consumer will never see this downward price movement, because it will be taken as profit at all levels from the gins to the fabric companies to the garment producers, and we as buyers will forever be stuck with this new price level of the finished goods!

DaveG


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## veedub3 (Mar 29, 2007)

DaveG said:


> China and the US are the two largest producers of cotton in the world, and together produce almost 50%. Add India and Pakistan into the mix, and that accounts for roughly 75% of the world's production.



That list is so old it is seriously inaccurate. Look at the fine print it is from 2003/2004. I will see if I can dig up a newer list but in September 2010 Austrailia was the worlds 5th largest producer, this list has them at 8th. China, India, and Pakistan were ahead of the US, with Turkey and Brazil bringing up the rear.


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## BroJames (Jul 8, 2008)

thutch15 said:


> What do you think about Gold and Silver? I just made a note to myself last night to remind me to check today. I am extremely interested in shorting both.


The last time I look gold chart looks somewhat like the cotton chart. Our wedding ring cost 4 times as much last week as it was 10 years ago.

You can short the market with tight stops but I won't buck the trend. Wait for it to drop and go long also with stops. Always with stops. Or better still, stay away as big moves require nerves of steel and the willingness to cut losses short.

As to transport cost of cotton, I don't really know how much that affect the pricing but I am thinking that it isn't really much. Baled cottons weighing 1 cubic meter can weight a ton. It is packed so tight that water won't get in. Baled cotton actually floats on water.


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## brice (Mar 10, 2010)

An interesting comparison would be the price of finished goods, say the standard white tee over time, in comparison to this commodity chart. I wonder how much finished goods really fluctuate with commodity price changes.


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## BroJames (Jul 8, 2008)

That would indeed be a good comparison. Cotton prices vs cotton yarn and cotton tee. I would expect some direct relationship over a longer time frame though like average prices over a 12 month period. 

Cotton are pruchased in the forward market where prices fluctuates daily. Prices in futures fluctuates by the second. I don't expect to see such fluctuations in the prices of yarn and t-shirts.


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## DaveG (Aug 3, 2009)

veedub3 said:


> That list is so old it is seriously inaccurate. Look at the fine print it is from 2003/2004. I will see if I can dig up a newer list but in September 2010 Austrailia was the worlds 5th largest producer, this list has them at 8th. China, India, and Pakistan were ahead of the US, with Turkey and Brazil bringing up the rear.



I'm not sure I'd call it "so old", (since in the world of ag statistics, it is fairly current), but you're right, there is more current information available! I just grabbed that particular one since it was in a nice easy-to-read form and required little work on my part!

I will concede that there has been some drastic changes in the position and production of the top 4 producers (based on the estimates for 2009 crop year), but the same 4 countries are still producing about 3/4 of the world cotton, and while Australia has increased their production to an expected 4 million bales in the 2010/11 crop year, it has only moved up on the list a single position to 7th since 2003, and still is responsible for producing less than 3.5% of the world's cotton.

You may have seen some information showing the planted acreages for cotton, and in that case, Yes, the US will be much further down on the list compared to many countries in the world. That's because the US can get substantially higher yields on a per acre basis when compared to most other cotton producing areas (excepting Australia and Israel which are highest). 



Some things to think about!

DaveG

Internet resources for further reading:

Global 2010-2011 cotton production to rebound on strong market prices | Cotton content from Western Farm Press

www.fas.usda.gov/wap/circular/2010/10-05/productionfull05-10.pdf

World cotton production forecast 2009 and 2010 - Agricultural Commodity News

Cotton - Wikipedia, the free encyclopedia

World Cotton Production to Increase by 12 Percent, ICAC Says - Cotton 24/7


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## chris1 (Nov 10, 2010)

Cotton prices are Crazy! And yes, toss a tee shirt on a scale and that's the starting point for determining the cost. Heavier the tee, the higher the cost. I used to peg tee shirt cost to the Cotton A index from suppliers in China, India and Turkmenistan. The A index is around 209 today and it averaged 77.54 cents a pound in 2009-2010, and was very low at 48.91 cents a pound in 2001-2002. Here's the mother of all that's cotton web site Cotton Prices, cotton industry, cotton commodity and cotton trading - Cotlook it's expensive for the latest info but they provide some info free. Cotton is crazy. 

Polyester's looking good. More fossil fuels -but it last forever. But this US duty rate of 33% on polyester tees is a killer. Guess the US came up with that rate when Dupont ruled the poly market. But since cotton imports along with peanuts were basically banned - maybe higher duty rates was a better option.


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## BroJames (Jul 8, 2008)

*Cotton prices surge to all-time high*

*By Gregory Meyer in New York and Javier Blas in London *
*Published: February 17 2011 09:39 | Last updated: February 17 2011 14:54*

Cotton prices burst past $2 a pound for the first time on Thursday and threatened to surge higher as mills race to secure bales against a looming exchange deadline. 

FT.com / Commodities - Cotton prices surge to all-time high


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## binki (Jul 16, 2006)

the good news is total acres planted is up nearly 20% so as the price climbs more want in on the deal. raw cotton is being hoarded right now though by some growers.


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## BroJames (Jul 8, 2008)

Let's hope so. Higher price would encourage more growers and price later drops as a result of increased supply. Question is how high for the near future. Then, when and how much will the drop be.

Rapid price increases and drops can't be good for the industry.


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## FatKat Printz (Dec 26, 2008)

Besides the financial and forecasts, one major issue was not addressed and that would be "mother nature" an uncontrollable factor in cotton productions. Floods, Hurricanes, Earthquakes and other devastating natural catastrophic events that farmers must face everyday.

Here in Florida, we have to worry about fruit farms and one day its good but the next it can change. Many have short term resolutions but if it ends up being long term it effects the areas outside of the farms. 

So think about the last year and the year before and how weather has become a major problem for many areas around the world, those areas most likely farming some sort of item.. 

Sure farmers have insurance and sometimes can cover their damages but the customer is affected until the next season.

So hoarding cotton would be a wise investment for a farmer because its a needed.demanded commodity and like car dealer fee's.. you want it we got it and you gotta pay extra.


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## BroJames (Jul 8, 2008)

speculation too. Mood of speculators can swing prices.


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## BroJames (Jul 8, 2008)

An end to rising prices or are prices getting more turbulent, violent, ferocious and vicious?








I traded commodities for a while and the market is really speculative. The huge single day drop really does not say anything much except that speculative sellers are more dominant at this stage. I just hope that the highs is somewhere near.


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## coacheschoice (Feb 19, 2011)

interesting... thanks for the info...


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## brice (Mar 10, 2010)

Same shirt I paid $1.45 for 6 months ago is now a $1.90... surprised it hasn't risen faster.


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## catago (Sep 2, 2010)

Prices are going up are they also making shirts smaller????
I must have missed the MEMO about the t-shirts going to be smaller than the label. I received the one on price increases 3 times. I ran an order in Jan for our local Fire Department the same order have done for years they order spring and winter over 100 t-s + hoodies today they brought back all the t-s they are all too small the XL are the same size as last year’s LG the 2X are XL and so on do I just eat this or what can I do. 2 years ago we went to all Jerzees because we were having a problem with Gildan coming apart now this what can I do. HELP…


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## BroJames (Jul 8, 2008)

> Higher prices dent cotton trading
> 
> By our correspondent
> Wednesday, February 23, 2011
> ...


Higher prices dent cotton trading

We all need help. I think the general mood is still for a higher price. Unless commodities continue to drop.


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## sallyinboston (May 1, 2010)

PositiveDave said:


> What proportion of the tshirt is related to cotton prices rather than labour?


Our t-shirts are manufactured in Egypt (with Egyptian cotton) and our manufacturer says that 90% of the cost of a t-shirt is the cotton, i.e. cotton yarn - before knitting, dyeing, cutting, sewing, ironing, packing, inspecting.


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## BroJames (Jul 8, 2008)

Is that saying:

The price of ginned and baled cotton constitutes 90% of the cost of cotton yarn? Or 
The price of raw cotton bolls constitutes 90% of the cost of cotton yarn?


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## sallyinboston (May 1, 2010)

90% of the cost of a t-shirt is the cotton
cost of a t-shirt is 100%
90% of the cost of a t-shirt is the cotton (either the cotton fabric or the cotton yarn)
this means that 10% of the cost of a t-shirt is the dyeing, cutting, sewing, ironing, packing, inspecting, etc.


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## BroJames (Jul 8, 2008)

I used to work for a garment factory that has ginning, spinning, knitting, and cut/sew operations. I think that "90% of the cost of a t-shirt is the cotton (either the cotton fabric or the cotton yarn)" can only be true if the company is losing money. "dyeing, cutting, sewing, ironing, packing, inspecting, etc" or is ultra efficient..I know that from yarn to fabric(knitting) the wastage and shrinkage alone is already more than 10%(at least in our case). The circular machines we use are a generation old. Better quality yarn and better manufacturing process could certainly lower wastage and loss.


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## BroJames (Jul 8, 2008)

Just an update. Wonder how(and if) the recent middle east crisis will affect cotton prices.


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## stix (Feb 3, 2008)

From the charts.. I say the prices are about to go through the roof!!


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## BroJames (Jul 8, 2008)

It's really a guess but I feel the same.


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## stix (Feb 3, 2008)

From the look of cotton futures. Price increases will occur in April.. I hope everyone adjusts their prices accordingly.


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## BroJames (Jul 8, 2008)

Are you an elliott theorist? It is really difficult to predict but sometimes nice to watch prices unfold. Just hope prices get back to more reasonable levels within the year.


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