Thursday 18 December 2014

Record stockpiles of US cotton should mean cheaper clothes for us

Published 14/08/2014 | 02:30

Lower costs for big-name brands including Penneys.
Lower costs for big-name brands including Penneys.

We may be seeing the last of the T-shirt weather but the price paid to keep up with the latest fashions looks set to fall thanks to a sharp drop in the cost of materials.

Cotton stockpiles in the US, the world's biggest exporter of the material, are set to expand at the fastest pace in three decades, prompting analysts at Citi Futures to forecast that slumping prices will reach a five-year low.

US cotton reserves will jump 115pc to 5.6 million bales by July 2015, the biggest gain since 1986, the US Department of Agriculture (USDA) said.

The price of cotton is one of the main input costs for clothing manufacturers - and because crop yields are weather dependent it can be very volatile.

A sharp fall in commodity prices will fatten margins for producers and retailers, and ultimately allow the gains to be passed on to consumers.

Prices in New York that have tumbled 25pc so far in 2014 will decline a further 10pc by the end of the year, according to Sterling Smith, a market specialist for Citi Futures.

Inventories are swelling as receding drought in Texas means American production will climb 36pc this season, the most since 2011, the USDA predicts.

The improving growing conditions coupled with rising stockpiles in China drove prices lower for three straight months, the longest slide in three years.

World reserves are poised to reach an all-time high, and the glut signals lower costs for big-name brands including Penneys, owned by ABF, Levi Strauss and Carter's Inc, which makes childrenswear

"We have two severe strikes going against the market: the bigger US crop and the massive global stockpiles," Mr Smith 
said. "If we don't have any weather problems during the rest of the growing season, it's going to be rough on prices."

Meanwhile the Arcadia Group, which owns popular fashion chains Topshop and Miss Selfridge, is to push into the fast-growing Chinese market through a tie-up with ShangPin.com fashion retail website.

Arcadia boss Sir Philip Green has long eyed the huge Asian market and Arcadia has two shops in Hong Kong. 
(Additional reporting Bloomberg)

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