Cotton prices are at their highest in the 140 years the commodity has traded on an exchange, as heavy Chinese buying and poor harvests are expected to keep global supplies tight.
The ICE December cotton contract hit $1.1980 a pound minutes after trading opened, eclipsing the previous record high set in 1995 by more than 2 cents.
Cotton prices began rising in July on a post-recession rebound in demand. When flooding in Pakistan and heavy rains in China wiped out parts of the major producers’ harvests, futures pushed past the $1 a pound level as traders feared a worldwide shortage.
While worries eased slightly after India and the U.S. reported strong production, Chinese mill demand has shown no signs of slowing and continues to boost the market. The U.S. Department of Agriculture said China bought 267,700 running bales of U.S. upland cotton last week, more than half of the total bales exported.
“We’ve never had a set of factors like this,” Country Hedging analyst Sterling Smith said.
Manufacturers throughout the cotton production line cut costs during the recession by reducing inventories, forcing a scramble for supplies this year. And the U.S. dollar’s steady fall has also encouraged exports and drawn investors to hard assets, including commodities.
“Inventories of yarn and fabric got low because of the recession, cotton inventories were low because production sank and all of the sudden demand comes back,” said Andy Ryan, an analyst at FCStone Fibers & Textiles. “It’s the perfect storm.”
Cotton first traded on the New York Cotton Exchange in 1870, and is now offered on IntercontinentalExchange Inc. (ICE). Prices reached their previous all-time high at $1.1720 a pound on April 24, 1995.
Analysts said the record prices are expected to damage profit margins for mills and merchants, with some fraction eventually passed on to consumers. Jeans maker Levi Strauss & Co. said earlier in the year higher cotton costs would result in price increases, and lower-end apparel retailers are expected to follow suit.
“The cost of buying at a wholesale level will rise,” Smith said. “We’ll start in February or March seeing a little bit of increases where 1/8 retailers 3/8 can get away with it.”
Since hitting its high, the benchmark contract has backed off throughout Friday morning on profit taking. It recently traded 2.63 cents, or 2.3%, below Thursday’s settlement at $1.1224 a pound. First Capitol Group’s Sharon Johnson said she suspects the market has hit its top, but cautioned that the rally up until now is unprecedented.
“I’ve seen a lot of big moves and this exceeds everything,” she said. “This is history in the making, it’s not something you’re going to see again in your lifetime.”
