Cotton Climbs to 140-Year High - WSJ.com http://online.wsj.com/article/SB10001424052748704300604575554210...

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COMMODITIES OCTOBER 16, 2010

Flashback to 1870 as Cotton Hits Peak

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Cotton Climbs to 140-Year High - WSJ.com http://online.wsj.com/article/SB10001424052748704300604575554210...

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By ADAM CANCRYN and CAROLYN CUI

Cotton prices touched their highest level since Reconstruction on Friday, as a string of bad
harvests and demand from China spark worries of a global shortfall.

The sudden surge in prices—cotton has risen

as much as 56% in three months—has
alarmed manufacturers and retailers, who
worry they may be forced to pass on higher
costs to recession-weary consumers.

The December cotton contract hit $1.1980 a

pound minutes after the opening of trading on
the IntercontinentalExchange on Friday. It is
officially the highest price since records
Stocks end mixed as financials stumbled for a second- began back in 1870 with the creation of the
straight day while a big jump in Google shares lead
technology stocks and the Nasdaq higher. Plus, cotton New York Cotton Exchange.
hit a 140-year high. Mike Reid wraps up all of the day's Most Popular in Markets
market action. The Mississippi Historical Society has its own
Bond Market Defies Fed
records that show cotton was changing
hands at $1.89 a pound during the middle of the Civil War, which lasted from 1861 to 1865. In Rally Fizzles as Stocks End in Black
the early stages of the war, the South halted exports in a failed attempt to draw Europe to its Facebook Pokes Yahoo and AOL
defense. Then later, the North imposed a blockade, crippling the South's ability to ship cotton
BHP's Problem Is Caterpillar's Opportunity
to Europe.
Fed's Yellen Defends Bond-Purchase Plan
The U.S. was then the largest cotton
producer at the time and the halt led to what
was dubbed the "cotton famine."

"I've seen a lot of big moves, and this

exceeds everything," said Sharon Johnson,
senior cotton analyst at First Capitol Group,
a financial adviser. "It's not something you're
going to see again in your lifetime."

European Pressphoto Agency

The cotton surge is part of a broad-based
A migrant cotton picker works in the cotton field in Recent Columns
Hami in northwest China's Xinjiang Uygur.
commodities rally since the beginning of the
year, underpinned by fears over a weakening Corn Sprouts Anew After a Selloff
dollar, healthy demand from emerging Oil Stalls on Mixed Data
markets and various weather-related supply disruptions. Along with cotton, prices of so-called Gold Capped by Rising Dollar
soft commodities such as sugar, orange juice and coffee all have soared, adding to concerns
that consumers might soon be paying higher prices for daily necessities.
Crude Oil
For the apparel industry, rising prices have upended roughly two decades of cheap cotton.
Consumers have become used to relatively low prices, making it hard for garment producers to 2:05 pm ET 11/16/2010

pass on the rising costs, especially as the economy struggles to recover. Crude Oil (Nymex) Compare with:

Raw materials make up between a quarter

Cotton Makes a Comeback
and half of the cost to produce a garment.

The most at risk are discount retailers that

compete on price and sell large quantities of
cotton-based basic items, such as T-shirts.
But clothing manufacturers of all price levels
may be forced to decide between absorbing RANGE: 1dy 1wk 3mo 6mo 1yr 5yr Custom
the costs or passing them on. Some say they
also are exploring different materials,
including synthetic blends.
View Slideshow
Kevin Leas for The Wall Street Journal Video
Jeans maker Levi Strauss said earlier this
Farm Belt Bounces Back year that higher cotton costs would result in
10/11/10 price increases. And in the past month,
executives from Kohl's Corp., Aeropostale
Inc. and Guess Inc. have mentioned increased pressure from cotton prices.
Chinese Banks Not ETFs Everywhere Pipeline Promise
Brian Tunick, managing director at J.P. Morgan, said last week that cotton prices, along with Likely to Go Global 1:09 1:08
Soon
sales and inventory pressures, could lead to "substantial downward" revisions in earnings per 2:55
share in the specialty-apparel sector.

2 of 5 11/16/2010 12:38 PM
Cotton Climbs to 140-Year High - WSJ.com http://online.wsj.com/article/SB10001424052748704300604575554210...

Jennifer Fritz, chief executive of Bambeeno Cashmere Inc., a children's apparel producer in
BACK TO TOP
Atlanta, decided to scrap all the cotton-cashmere blend items from its spring production line
due to the sudden rise in cotton prices. Since it is hard to raise prices in this economic
environment, Ms. Fritz said she would have to swallow the rising costs of cotton and lose 'State Capitalism' in China Sparks Backlash
money on her collection. "It's just not worth doing so," she said. California Tests Muni-Bond Market
Price increases could come in the first quarter next year, according to Sterling Smith, an Bond Market Defies Fed
analyst at Country Hedging, a brokerage firm. Investors Shine Light On Firms They Favor

While the recent price eclipses the previous nominal record of $1.1720 in 1995, it is still a way
off from the inflation-adjusted high of $5.2644 in 1918, when demand was soaring due to the Most Popular
textile industry's explosive growth. And, after peaking early in the trading session Friday, the
Read Emailed Video Commented Searches
December contract declined five cents, or 4.4%, to settle at $1.0987.

Cotton futures prices pushed past the $1 a pound level on Sept. 20 for the first time since 1. Apple Gets Rights to Beatles Music
1995. In the intervening 15 years, cotton prices have largely traded between 40 cents and 80
cents. 2. Apple Readies iPhone for Verizon

Prices began moving higher in July as it became clear that a rekindling of demand for cotton 3. Greece, Germany Grapple Over Debt
—spurred by manufacturers restocking as the economy recovered—collided with fears of a 4. Ethics Panel Agrees to Facts Against Rangel
shortage.
5. Fresh Attack on Fed Move
Pakistan, the fourth-largest producer of cotton, saw its crops affected by devastating floods
this summer. Heavy rains in China crimped that nation's crop, resulting in a 5.4% drop in global Most Read Articles Feed
production in 2010.

China is the largest cotton producer, followed by India and the U.S. Even though India and the
U.S. reported bountiful harvests this year, it didn't make up for the declines in China and Latest Tweets Follow

Pakistan. "Securitization Industry Set to Defend Practices

http://on.wsj.com/bbpUrs"
Meanwhile, demand from Chinese cotton mills has shown no signs of slowing. The U.S. 1 hrs 31 min ago from WSJMarkets (WSJ Market News)
Department of Agriculture said China bought 267,700 running bales of U.S. upland cotton last
week, more than half of the total bales exported and more than the country usually takes. "Asia Falls; BOK Move Hits Seoul http://on.wsj.com/bFVEzL"
2 hrs 33 min ago from WSJMarkets (WSJ Market News)
On Friday, the
China Cotton "Asia Falls; BOK Move Hits Seoul http://on.wsj.com/bFVEzL"
Association 2 hrs 33 min ago from WSJWorldMarkets (WSJ World
issued a Markets)
warning on its
"China Plans Onshore Ruble Trading http://on.wsj.com
website, saying /9mRKXQ"
that this surge, 3 hrs 3 min ago from WSJMarkets (WSJ Market News)
though
supported by "Investors Shine Light On Firms They Favor http://on.wsj.com
/atgyGG"
fundamental
3 hrs 34 min ago from WSJMarkets (WSJ Market News)
factors, was
Art Resource NY largely caused
Cotton on Friday hit a price not seen since at least 1870. That's shortly before Degas by speculators. Latest Headlines
painted this scene of the New Orleans Cotton Exchange, and not long after the 'cotton
Tea Party Wins GOP Vow to Ban Earmarks
famine' of the Civil War sent prices soaring. Behind today's rise: strong Chinese demand
"It has messed
and poor harvests. Teacher Training Is Panned
up the order of
purchases, led Ethics Panel Agrees to Facts Against Rangel
to lower quality of cotton and put the industry's sustainable development on danger," it said.
Fed's Yellen Defends Bond-Purchase Plan
In Kennett, Mo., cotton farmer Tom Wilkins has just finished harvesting 2,500 acres of cotton. Reserves Up at Home-Loan Agency
He said that "this is the best year" since he started planting cotton in the 1970s. Summers: China Is 'Central Challenge'

However, the lofty prices are making some cotton farmers worry. Consumers Are Feeling More Flush
Eased Health-Law Rules Help Employers
"I hope it won't go too high. If you can't put it into clothes and clothes become too expensive,
prices will come down," Mr. Wilkins said. Store Asks Justices to Review Price Ruling
End of Jobless Benefits Is Political Plight
—Elizabeth Holmes
contributed to this article.
More Headlines
Write to Carolyn Cui at carolyn.cui@wsj.com and Adam Cancryn at
Adam.Cancryn@dowjones.com

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Cotton Climbs to 140-Year High - WSJ.com http://online.wsj.com/article/SB10001424052748704300604575554210...

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