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 (ICA).
“This is the biggest challenge the cotton industry has faced in 40 years or so,” said Cliff White, who becomes ICA president in December, and runs Olam’s U.S. cotton business. said. “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. About 30 percent of the world’s traditional cotton buyers have shut or “significantly reduced” operations since last year, according to Adrian Moguel y Anza, chief executive officer of a commodities risk-management company owned by 50 farming groups in Brazil’s Center-West.
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.”
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. Production was 108.7 million bales in 2008/09, he said.
Monday, futures for December 2009 delivery on ICE Futures U.S. in New York closed at 61.72 cents a pound, up 1.02. December of 2010 closed at 68.42, up 1.39. Textile mills want to buy cotton closer to 60 cents a pound, while cotton growers are selling at 65 cents a pound, White said. “I’d favor the higher side of the market,” he said, when asked which way prices may break out of the range.
The industry believes there’s going to be a small drawdown in our annual stocks after crops are harvested, Nicosia believes. But that will depend on economic conditions and weather conditions in the next four to six weeks as harvests pace increases in the U.S., China and India.