One of Newton’s laws on physics says that for every action, there is an equal and opposite reaction. Well, that may be true for physics, but for economics, and cotton in particular, it’s more like…for every action, you’ll see the same reaction on the other side.
John Devine, economist with Cotton Inc. in Cary, NC has been keeping a close eye on cotton prices at their historical highs, and what that will mean on the consumer end. Devine says that it’s almost a certainty that we’ll see higher prices for cotton garments and textiles:
“Certainly it’s gotten a lot of people’s attention regarding how large this price increase might be on the consumer end, and also when this price increase might take place.”
Devine says that the raw fiber to finished product chain is long, but those price increases at the retail level could be showing up this year, possibly by summer:
“Typically when we look at the cotton supply chain, it will take anywhere from eight to 12 months for orders placed by retailers and brands to show up on their shelves.”
Devine outlines what Cotton Inc. believes will be a typical price increase for a cotton t-shirt:
“So, when we’re taking a look at prices we need to keep in mind that cents-per-pound at the fiber level is completely different than what we’re looking on a retail store’s shelves, in terms of the overall size of the price. Here at Cotton Inc. we’ve run some analysis on a series of different apparel items to get an idea of how much cotton fiber goes into certain garments. So, to take a look at t-shirts, for example, involves a little less than half a pound of cotton to manufacture that item. so we’re looking at a price increase of about .85 cents per pound which is what we’ve seen in prices in December relative to what they were in August. That would give us a theoretical markup of about .35 cents due to the increase in fiber prices alone. Which, of course, is significant if you’re selling millions and millions of units, but in terms the over all size of the price increase at retail, it should not be very large.”
And what about that American staple-denim jeans?:
“Denim jeans, certainly a very important use consumer consumption of cotton fiber. And if we take a look at a pair of jeans, there’s about two pounds of cotton that goes into manufacturing a pair of jeans. Again, taking a look at the increase in cotton prices that we’ve had just since this crop year began in August, looking at about .85 cents per pound increase, with about two pounds of cotton going into those jeans, it’s about $1.60 increase could be expected, or could be predicted in price of jeans due to increase of the price of cotton fiber alone.”
We’ll visit more with Cotton Inc.’s John Devine tomorrow on Today’s Topic.