I am pleased to announce that FCStone Fibers & Textiles will conduct a multi-client study entitled, "The Future of High Quality and Branded Cotton."

With particular focus on China, India, the U.S. and Egypt, this study will probe into the possibility that global production of the highest quality of cotton -- extra-long staple (or ELS) -- is declining due to the expansion of long staple (or LS) cotton as the dominant type of quality cotton produced today. In so doing, the study will not only explore the rise of new, branded varieties of LS cotton that have helped to raise the overall level of cotton quality globally, but have also prompted a decline in Pima and other ELS varieties, while at the same time reducing the share of the traditional lower end of the market, generic upland cotton.

For example, in China there is a major shift away from ELS in favor of LS cotton in Xinjiang, the country's top cotton-producing province. At the same time, U.S. Pima acreage is rapidly disappearing, while Egypt has suffered a 50 percent reduction in its production of ELS cotton.

Ultimately, there will be ramifications of the rise of LS cotton for merchants, mills and retailers as the purchasing, consumption and marketing of such varieties will change how cotton is utilized throughout the entire textile supply chain.

FCStone Fibers & Textiles proposes to undertake this essential strategic study for delivery to subscribing clients by August 31st. Please click http://globecot.com/20090615prospectus.pdf to download a copy of the prospectus.

Which hat is the government wearing?

There is the general consensus that in the fall the government is worried about how much the farmer receives for his seed cotton while at the turn of the new year the textile mills get their wish for additional quota allocation. The system works like clockwork—usually. This year, however, the reserves has stepped in first to take cotton off the market, thereby buffeting the farmers price he received for seed cotton. Then, as the market shortage took effect the reserves began releasing stock from the 2003/05 and 2008/09 marketing years. Due diligence was conducted but not from what the mills actually needed or for that matter wanted. Rather, it came from what was determined best for the market. In this case, the reserves wanted supply and to get rid of old stock at a likely profit. Smart move on both accounts. However, mills, particularly vertical ones and further up the value chain, remained in the same condition—short of high grades and no quota. We continually have pointed this out so the recent revelation that high grades are still in short supply and that the reserves is now likely to issue additional import quota really should come as no surprise. Current estimates being considered by the government range from 100 to 500k.

The Future of High Quality and Branded Cotton?

Several blogs ago I mentioned FCStone Fibers and Textiles was preparing a multi-client study on the replacement of Extra Long Staple (ELS) cotton acreage with Long Staple (LS) cotton in China’s Xinjiang province. The blog entry drew quite a bit of commentary about including Pima as well as Egyptian. Well, we have and are proud to announce the forthcoming multi-client study, "The Future of High Quality & Branded Cotton". A copy of the prospectus can be downloaded at the following address: http://globecot.com/20090615prospectus.pdf. I’ve included the opening introduction which pretty much is the gist of the study. Should you be interested in subscribing feel free to contact me directly at jim.lambert@fcstone.com.

High quality and branded cotton acreage is on the decline around the world. In China, there is a major shift from extra long staple (ELS) to long staple (LS) cotton acreage underway in Xinjiang, the country’s top cotton production province. In the US, Pima acreage is rapidly disappearing while Egypt suffered a 50 percent reduction from the previous year’s output. Ultimately, the rise of long staple cotton is supplanting high quality and branded grades; the ramifications of which will have a huge bearing on how merchants, mills and retailers trade, purchase, consume, market and brand high quality cotton as a fiber and end product.

FCStone Fibers and Textiles (formerly Globecot) proposes to undertake a strategic study of the key countries producing long staple (LS) and extra long staple (ELS) cotton with a primary focus on China, India, the US and Egypt. Because the supplanting of high quality and branded cotton acreage with long staple cotton will have such a dramatic effect on the world’s textile industry, we will include an additional section detailing what 20 major vertical textile mills—all primary users of ELS, Pima and/or Egyptian cotton—think about how this switch will impact their business. An additional bonus to the report will include a section offering thoughts and opinions from up to ten of the top US, Asia and European retailers (and brands) currently using and promoting high quality and/or branded cotton in their final products be it apparel or home furnishings.

China Commodities Update--LH May

Apologies for getting this update out later than usual. In preparation for another trip to China, which will be reflected in FH June's update. To download China Commodities Update for LH May, please click http://www.globecot.com/20090605lambert.pdf

Reserve Release....A Disappointment so Far

While China has seemed to cool the cotton market with a reserve release of 1.5 million tons over the course of several months, many, myself included, are beginning to wonder just how effective the move has been. To date, volume has not even reached 50% of the the daily alottment. To remedy this, the initial reserve price of 12,900 for 2008/09 was dropped to 12,600 yuan/ton as a way to stimulate demand from lesser capitalized mills. It has certainly helped increase volume but not as much as one would expect. Likewise, the announcement that the reserve would look to add more tonnage (keeping the 1.5 million tons in tact) from the original one million tons of 2008/09 crop to help with the shortage of high grades has achieved the opposite of the intended effect. Even today, one of the biggest concerns of the market is still the tight cash market underscored by an absence of the high grades mills want. Herein lies the choice facing the reserve: continue on and hope things work out best or release a minimal amount of import quota and let the mills buy the cotton they actually want. Otherwise, we will continue to have a very lukewarm response to reserve auction.