The cotton industry faces a “huge challenge” as traders close, leaving Louis Dreyfus & Cie. SA, Olam International Ltd., Noble Group Ltd. and Cargill Inc. controlling more than half of the fiber traded worldwide, said the incoming president of the International Cotton Association.
“This is the biggest challenge the cotton industry has faced in 40 years or so,” Cliff White, who becomes president in December and runs Olam’s U.S. cotton business, said in an interview yesterday in Liverpool, England. “There are fewer players in the merchant community.”
Paul Reinhart Inc. of Texas sought bankruptcy protection last year, the U.K.’s Weil Brothers & Stern Ltd. said it planned to close next year, and Memphis, Tennessee-based Dunavant Enterprises Inc. held merger talks with Allenberg Cotton Co., owned by Dreyfus.
Cotton reached a 12-year high on March 5, 2008 before dropping 26 percent by March 20, triggering an investigation by the U.S. Commodity Futures Trading Commission.
“The pricing activity in March 2008 was a reality check for a lot of us in the industry,” said White, who has worked in the cotton industry since 1976. With the cotton market dominated by large companies that have exposure to different commodities, it “will help in today’s very difficult, very volatile market,” he said.
“The sustainability of the cotton market has to be the objective of all of us,” White said.
Annual cotton demand is about 105 million bales, each weighing 480 pounds (218 kilograms), and traders focus on the 30 million to 35 million bales that are shipped worldwide, rather than consumed domestically, White said. China is the largest consumer and producer of the fiber.
Cotton prices have climbed 25 percent this year on speculation strengthening economies will spur increased consumption from textile manufacturers. Global cotton demand will exceed production by 376,000 metric tons in the marketing year that started Aug. 1, compared with a surplus of 889,000 tons a year earlier, Birkenhead, England-based research company Cotlook Ltd. estimated on Sept. 25.
Production may rise 10 percent to 116.1 million bales in 2010-11 from the previous year as prices climb, Joe Nicosia, CEO of Allenberg Cotton, said today. Output was 108.7 million bales in 2008-09, he said.
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