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Cotton Glut Expands to Record as Hanes Profit Gains

August 29, 2013
cotton field


Aug. 29 (Bloomberg) -- The fourth straight year of surplus cotton output and the biggest drop in Chinese imports since 2000 are creating record global inventories, signaling higher profits for the makers of Hanes underwear.

Stockpiles will jump 8.6 percent to 93.765 million bales in the 12 months ending in July, the U.S. Department of Agriculture said in an Aug. 12 report. There are enough inventories to make three pairs of jeans for every person in the world and reserves doubled since reaching a 13-year low in 2010. Prices may fall 8.8 percent to 76.6 cents a pound by the end of 2013, according to the average of 16 analyst estimates compiled by Bloomberg.

China, which uses about a third of the world’s cotton, will reduce imports by 46 percent, or 9.33 million bales, from last year as it focuses on supporting local producers. It is accumulating the biggest stockpiles ever after the government bought supply to aid farmers as economic growth slowed. The USDA’s prediction for Chinese imports is about twice the drop it expects in global output, at a time when crops are improving across the U.S., India, Brazil and Australia.

"We expect weak Chinese demand and high global production to continue weighing on prices," said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors, which oversees about $1.3 trillion of assets. "The Chinese economy is slowing and export growth has been weaker than we expected for textile mills and other manufacturers."


Demand Expands


Cotton rose 12 percent to 83.95 cents on ICE Futures U.S. in New York this year as improving yields reduced concern about drought that had driven prices as much as 25 percent higher. The Standard & Poor’s GSCI Spot Index of 24 commodities advanced 3 percent since the end of December, and the MSCI All-Country World Index of equities added 7.4 percent. The Bloomberg Treasury Bond Index lost 3.3 percent.

Global production will drop 3.9 percent to 116.38 million bales in the 12 months that began Aug. 1 as demand expands 2.3 percent to 109.85 million bales, the USDA says. A bale weighs 480 pounds (218 kilograms). China’s stockpiles will surge 16 percent to 58.26 million bales, more than five times what it held in 2011 and 62 percent of estimated world inventory.

The glut emerged after prices almost doubled in 2010 and reached an all-time high of $2.197 in March 2011. Production expanded to a record 125.14 million bales the following year. Demand fell 11 percent since peaking in 2007 as the global recession curbed sales of clothing, bedding and textiles.


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