Cotton prices in 2018-2019 should find support in the 75-cents-per-pound range and will have the potential to move higher, says Ed Jernigan, CEO of Jernigan Global.
“As we look to next year and you make your planting decisions, the U.S. needs more cotton acreage because of the demand for machine-picked cotton. This acreage needs to come from stable production zones that can provide this higher quality cotton,” Jernigan said at the Deltapine NPE (New Product Evaluator) Summit in Savannah Dec. 9.
Jernigan, who has more than 30 years of experience in global supply chain management for cotton textiles and apparel, forecasts global cotton consumption in 2018-2019 will surpass its previous peak in 2006-2007.
Cotton consumption is expanding in China and outside of China. “We look for cotton consumption in China to return to what we call the post peak. It peaked at 50 million bales and then collapsed and we think it will return,” Jernigan said.
Jernigan also believes 2017-2018 ending stocks will be much lower than USDA projects. “If U.S. export sales the rest of this season average 200,000 bales then the U.S. will find itself short of the basis on Oct. 1 and will need new cotton to bridge the gap,” he said.
In addition, Jernigan notes that China’s stocks are down while consumption is expanding there. Stocks outside of China are overestimated with Jernigan pointing to India where he says USDA stocks are overestimated by 6 million to 7 million bales.
“India has been paying above world market cotton prices for 15 months. They’re not going to do that if cotton is sitting in storage somewhere,” Jernigan said.
In his comments at the Deltapine NPE Summit, Jernigan stressed that U.S. cotton now has improved chances to fight back against polyester. He points to the end of cheap polyester and the move away from “fast fashion” that favors polyester as major factors.
Jernigan sees a turning point for polyester this year due to changes in China. East China was the first region of the country to industrialize beginning in 2000. Jernigan said the polyester industry expanded greatly in the region but at great costs to the environment.
“Seventy-five percent of the water is unavailable to drink in East China. The air is unbreathable and the soil has been polluted. The new Chinese premier (Li Keqiang) has done a lot of things that are dramatically different now. Growth at all costs is out and there is an era of cleaning up the environment which can really help cotton,” Jernigan said.
China is now requiring polyester plants to either clean up or shut down, which Jernigan says is rippling throughout the entire textile supply chain. “New plants that were planning to come online are not coming online now. Those that do come online at a much higher cost structure,” he said.
In addition, demand for polyester is increasing in China because it is used for other products beyond apparel such as car seats. Jernigan said polyester prices have risen sharply and his economic team projects polyester prices will be 75 cents per pound by this time next year.
Jernigan also sees growing demand for high-quality cotton as the trend of fast fashion comes to end. Fast fashion is basically throw away apparel that gained favor when polyester prices were cheap.
“Fast fashion really hurt high-quality cotton demand because it changed the price structure and it also ushered an age for a period of time where it was all about commodity cotton. That’s going to change. Fast fashion has peaked. The age of throw away apparel is over and you will begin to see this change swing back somewhat,” he said.
Moreover, Jernigan sees stronger demand for machine-picked cotton as spinners and apparel makers strive for quality. Hand-picked cotton has more contamination and other issues with lower quality. Greater demand for machine-picked cotton will put the United States, Brazil and Australia in the driver’s seat with their cotton being in greater demand over their hand-picked cotton competitors.
This trend is already evident with India and Pakistan importing record amounts of U.S. and Australian cotton last year. “The buyers are seeking machine-picked cotton because the end user wants it,” Jernigan said.