Cotton crisis sends prices soaring

Get ready to pay more for blue jeans, towels, and baby-soft sheets. Cotton prices are way up, and retailers are no longer willing to soak up the increases without asking customers to share the pain.

The cost of clothing is expected to rise this year because bad weather and other cotton-crop difficulties in 2010 have led to massive, sustained price increases for the newly scarce natural fiber.

The global price of cotton rose 131 percent from January 2010 to last month, reaching a record high, according to the U.S. Department of Agriculture. That has only intensified in recent weeks, as prices for future cotton deliveries have surged, and experts predict higher apparel prices at stores until the cotton crunch eases a year or two from now.

"The [cotton] price is 169 percent higher than it was, on average, during 2008-09," said Stephen MacDonald of the USDA's Economic Research Service in Washington.

A supply shortage is only one reason for recent price pressures. Rising labor costs at foreign textile factories in growing economies such as China also are to blame for retailers' plans to raise prices, as are commodities traders, whose bets on rising cotton prices are making it even more expensive.

Although the spike is about a year old now, apparel retailers have only recently sounded a warning that they intend to raise prices to customers, albeit cautiously, with the biggest impact likely to be felt come the fall.

Retailers have held off passing along those costs during the fragile recovery from the recession, whose wage cuts and high unemployment continue to weigh on consumer spending.

"We do believe that folks across the board are going to be raising prices," Judd P. Tirnauer, chief financial officer of Destination Maternity Corp. in Philadelphia, told analysts in a conference call three weeks ago. He foresaw price increases of 5 percent, 10 percent, or higher on some maternity apparel this year.

"We do expect a modest impact for our spring season, which may increase slightly more as we enter summer," Anthony M. Romano, chief operating officer of Charming Shoppes Inc. the Bensalem company that owns Lane Bryant and Fashion Bug stores, told analysts in December. "The biggest challenge will be for the fall and holiday 2011, which are still under development."

Cotton's crisis had its origins in Asia early last year, said Steven Frumkin, associate professor of business at Philadelphia University.

"We had big floods in Pakistan, and we had poor crops coming out of China," Frumkin said.

In recent weeks, the surge in prices grew more pronounced as speculators swooped into the cotton futures market in anticipation of profit-making opportunities, he said.

Since Feb. 1, prices of cotton futures contracts on the Intercontinental Exchange in New York have gone from $1.72 per pound to a 12-month high of $2.04 per pound Thursday, an 18.6 percent increase.

The reason: A cycle that begins when manufacturers put off buying cotton in the hope the price will drop.

"Let's say I'm Levi Strauss, and let's say I buy the raw materials or am the person who makes the garments for Levi Strauss," Frumkin said. "They're hedging their bets that tomorrow, if they go and buy a contract, the price will be less."

Speculators, meanwhile, are betting that cotton will continue to rise in price. They are buying futures contracts so they can resell them at higher prices to manufacturers, who will then be too desperate to wait any longer to place their orders.

Though Frumkin and local economist Joel Naroff predicted higher prices for shoppers as a result of all this, Wharton School retailing expert Stephen J. Hoch was less certain.

Hoch, for one, said manufacturers seemed to be colluding on the price increases - floating the notion of higher prices to make up for years of low growth in apparel pricing. Clothing was unusually cheap for years as Chinese factories snapped up retail-production contracts with low labor and textile prices, he said.

"Consumers," Hoch noted, "have been used to some really low prices on clothing."

Though it's true, he said, that rising wages in China's vastly expanding economy are now making textile manufacturing more expensive, there is no assurance that shoppers will accept big price increases.

"I think it's going to be less noticeable than we think," Hoch said.

When marked-up merchandise does not sell - or moves only after being discounted - retailers and manufacturers often share the financial hit, he said.

"At the end of the day, the consumer's going to be the one who votes with their pocketbook," Hoch said. "You can raise prices, but it doesn't mean the people have to buy it at that price."