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Alert: cotton price halved in 4 months
The cotton price has halved in four months from 243.7 UC/lb on 8 March 2011 to
132.6 UC/lb on 5 July 2011 as supply is catching up with demand. As discussed
in the 24 May 2011 Pan-Asian Hunting Stocks: Thematic developments
quarterly, we expect cotton prices to eventually stabilise around 100 UC/lb
through much of 2011/2012. However, compared with the 2005-2009 average of
61.8 UC/lb, the current price of cotton is historically high.
Raw material input cost pressures are dissipated through the cotton supply
chain. Both this and the ongoing rapid decline in spot cotton prices should allow
investors to look with more confidence at apparel retailers. As showcased in the
24 May 2011 report, we recommend Fast Retailing (9983 JP, ¥12,770,
Outperform, TP: ¥15,000, Toby Williams) for the next 2-3 years. A short-term
decline in the cotton price would benefit its competitor, but Fast’s long-term
contract style for input remains competitive at historically high cotton prices.
Please see Toby William’s latest report, the 18 April 2011 Fast Retailing: The
best and the rest.
For more on cotton fundamentals, please see Kona Haque’s latest report, the 30
June 2011: Macquarie Agri-view: A closer look at the Brazilian cane harvest.
According to the June USDA report, US cotton acres for 2011/12 are estimated
at 13.7m acres, versus the March estimate of 12.57m. This is 25.1% above the
last year level (actual). Together with weak US export sales data, the December
2011 contract cotton price is now lower at 115.52 UC/lb (5 July 2011 price).
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