Cotton prices hit a record high on Friday, surging above $1.90 a pound amid a global shortage of the fibre.

The cost of the commodity has jumped 150 per cent since the start of 2010, forcing clothing companies to raise retail prices. The jump comes as demand for textiles rebounded from the global financial crisis and India, the world’s second-largest exporter, restricted shipments to help its domestic textiles industry.

On Friday, the benchmark ICE March cotton contract rose 3.7 per cent to an intraday peak of $1.9455 a pound. That was the highest in the 141-year history of the New York exchange and its predecessors, and it is was also above the price reached during the cotton embargo of the American civil war in the 1860s.

Joe Glauber, chief economist at the US Department of Agriculture, said that over the past five years consumption had exceeded production. “There was a drawdown in world stocks,” he told an industry conference in Palm Beach, Florida.

“There’s no cotton – there’s very little cotton out there,” he added.

Traders are concerned prices could rise above $2 next week as they worry India will extend export restrictions amid sharply rising domestic prices and concerns about inflation.

Cotton traded between 80 and 40 cents for most of the 2000-2010 period, when supplies were plentiful.

Global demand for cotton will outstrip production by 1.3m bales in the marketing year to July, according to estimates by the USDA.

Kona Haque, commodities analyst at Macquarie in London, said that US farmers were likely to plant more cotton this spring, boosting global production.

But she cautioned that fresh supplies were “still some 8-9 months away”.

Rabobank, the Dutch bank which is one of the largest lenders to the agribusiness industry, said
the world needed a record cotton crop next season just to maintain the current tight fundamentals.

“An inadequate harvest would likely result in continued record [price] highs,” the bank said in a report.

The rise in prices is prompting concerns it could devastate mills and merchants. The ICE Futures US exchange last week said it was planning to force traders with large positions in cotton to prove they were economically necessary.

Cotton futures have also lured hedge funds with no desire to own a physical bale. Bullish bets heavily outnumber bearish ones.

The massive buying position has stoked a growing panic among mills, which contract to purchase cotton.

The exchange on Friday increased the amount of money that speculators and commercial hedgers have to pay to guarantee their contracts – or margins – by
25 per cent as prices surged.

Get alerts on Currencies when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.

Follow the topics in this article