Rising cotton prices may bring an end to the era of the US$2 T-shirt
The days of buying a T-shirt for just US$2 might be over as cotton prices surge to record highs and forecasts are that they will stay there.
For a decade the cotton price has been relatively stable, at between 50 to 80 US cents for a pound (See graph).
But benchmark 'front month' cotton futures contracts are now trading at just below US$2.10 for a pound, up 50 per cent compared to the end of last year. The term refers to the contract month with an expiration date closest to the current date, which is often in the same month.
The impact of those soaring prices is already evident in profit statements from retailers.
Hennes & Mauritz, which sells fashionable garments at low prices, reported a 10 per cent fall in its gross profit margin last year largely due to rising costs of raw materials. The Stockholm-based retailer, which has been growing its business rapidly in many parts of the world, said that it would not raise prices because it wanted to preserve market share.
The recent surge in cotton prices resulted from declining production, as many former cotton farmers switched to growing higher margin crops such as soya bean and corn as the financial crisis hit the global economy.
