Apparel makers remain wary of the recent surge in cotton prices as they have skyrocketed, ballooning to more than $1 a pound, a 35% surge this year alone. The catalyst is a fundamental imbalance of global supply and demand.
According to the Agriculture Department, cotton consumption is expected to outstrip production for the fifth year in a row.
Estimates from Hanesbrands reveal that every one cent increase in the price of cotton results in an annual raw materials rise of approximately $3 million.
However, there are other factors at work such as a weaker U.S. dollar and heightened interest from investors. Cotton prices have risen 20% alone since the Federal Reserve's Aug. 10 meeting, resulting in a wary disposition for U.S. apparel makers.
Estimates loom as to the impact of the uptick in pricing, although many manufacturers won't report earnings until mid-November. However, one early gauge could come from Nike Inc.'s fiscal first-quarter earnings set to be released on Thursday, Sept. 23. Given Nike’s marriage with more performance-based fabrics in recent years, the cotton surge may not affect the company’s bottom line to the extent of other apparel makers. Nike does, however, boast a small portion of its sports apparel that is still cotton-based. Accordingly, investors are eager to know if the price rise poses any risk.
