Mills Slow to Buy, but ELS Is Poised for Growth
February 22, 2012 Trying to keep up with the volatile market for extra-long staple (ELS) cotton during the past 18 months has been similar to riding a rollercoaster. Prices for American Pima have probably never moved upward so rapidly, only to be followed by a similar rapid descent in prices. Mill prices have moved from the $1.35/lb range in March 2010 to a record of more than $3 in February 2011, and back below $2 by December.
The steep escalation of prices began soon after the end of the 2010/11 crop year, when worldwide ELS stocks were at perhaps an all-time low in regards to stocks to use. Mills were operating on full schedules, and some of the largest spinners were afraid they would not be able to secure adequate supplies for future needs. A buying spree began around October 2010. By the time the current and just harvested 2011/12 crop was being planted in March/April, almost 50% or 314,000 bales of the expected American Pima cotton production had already been committed to spinners around the world.
But by early spring, it was evident that major ELS producing countries would all increase acreage significantly. At the same time, world economic conditions became even more uncertain, causing mills to become wary of additional purchases. As a result, Pima sales for the 2011/12 crop since April 1 fell by about 30,000 bales.
The question being asked: Is demand for ELS cotton really that bad now? In my opinion, no. Business is certainly difficult because there are so many uncertainties, but these slow sales are more the result of mills having an adequate supply after the buying binge from October 2010 through March 2011. In addition, mills paid record prices for most of this cotton, so they have inventories of high-priced cotton in a market that now has significantly weaker prices again. Mills just don’t want to get back into the market until absolutely necessary.
Prices of ELS cottons have also declined and continue to do so – another reason for the lack of buying interest from the mills. Mills expect American Pima cotton prices to decline further, as harvest is completed and growers are making decisions for 2012/13. However, with 60% of the crop already sold, merchants and growers are in no hurry to reduce prices. At presstime, American Pima prices were hovering at $1.96/lb CIF Far East.
The future looks bright for all ELS cotton growths, especially for American Pima, which has a number of successful and innovative programs under way. There have also been some positive economic developments recently. The first is the serious discussion of a Euro-Zone fiscal package to require budget discipline and make it legally binding. Meetings – and hopefully agreements – between European countries have eased world financial fears somewhat. Another positive indicator was the record U.S. retail sales of more than $52 billion over the Thanksgiving holiday weekend. This compares to $45 billion last year.
Improved Products, Better Marketing
What is required for the American Pima cotton industry to maintain and increase our leadership in being the largest world exporter of ELS cotton? The two most important actions are to continue to make improvements in our product, and to increase and create more effective marketing and promotion programs to build the Supima brand.
Improving the product requires making advances in seed varieties with improved fiber properties. This is necessary to stay ahead of other ELS cottons and to maintain a wide fiber quality margin between Upland cottons. Variety improvements have been a major reason that American Pima has gained such a prominent position in the world trade of ELS cotton in the past 25 years. Continued research and success depends on a strong and vibrant industry. Otherwise, the major seed companies have no incentive to work to develop new and improved varieties.
Marketing and promotion activities, the heart of Supima’s mission, have never been so important. It is essential that Supima create more consumer awareness of the advantages of premium cotton. Consumers must know why the product is more expensive and why it is a better value in the long term. This is a big challenge.
Supima will need to increase its marketing/promotion activities. Funding is not likely to increase by much, so more retail/brand alliances are going to be required in the future. These cooperation/alliances allow Supima to leverage our limited funds with large retailers and brands; companies such as Brooks Brothers, Bloomingdale’s, Marks & Spencer, Lands’ End, L.L. Bean, Nordstrom’s, Crocodile and others. This is necessary to build and grow the Supima brand to increase demand.
Growing Demand a Shared Responsibility
The global recognition and prominence of cotton is obviously strong. But, maintaining this current status shouldn’t be taken for granted. Besides the United States, few, if any of the cotton producing countries are promoting/advertising cotton consumption to the consumer. Others need to step up and help in the promotion of cotton. Cotton Incorporated has been the global leader in making cotton recognized and desired by consumers at least in the U.S. and even globally along with Cotton Council International.
Supima recognizes that our success is dependent on the consumers’ perception of cotton. If cotton doesn’t have a desirable image to consumers, then it’s impossible to promote Supima cotton. Most other cotton producing countries are doing little or nothing to promote cotton to the consumer. They are benefiting by what Cotton Incorporated and Cotton Council International have done to make cotton recognized and appreciated as the finest fiber for textiles.
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