China cottons to cotton

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China's growing desire for U.S.-produced cotton is driving commodity prices higher, offering opportunity for farmers but harming domestic companies that have to compete for the raw materials.

"It's hard not to notice. The price is up dramatically over the last couple of months," said Van May, president and CEO of Lubbock, Texas-based Plains Cotton Cooperative Association. The cooperative is one of the largest handlers of U.S. cotton, and also owns denim mills and warehouses.

"From the growers' side and the cotton side it's healthy that prices have escalated. On the textile side, it's a killer," Mr. May said.

Arguably, China is buying too much from the United States. The cotton situation shows how the fast-growing nation can affect world markets -- first buying a raw material and driving up prices, then selling a low-cost finished good and driving down prices.

Manufacturers of fabrics and clothes are caught in the middle, paying more for basic commodities but unable to pass on costs to retailers.

Cotton prices on futures markets hit long-term lows in October 2001, but as of last week prices were the highest since 1994, said Terry Roggensack, agricultural analyst with the Hightower Report, a Chicago publication that tracks commodity markets.

"There is a lot of concern that China is going to be an aggressive importer of U.S. cotton and continue to support prices," he said. "It's driven by fears we're going to run out of cotton."

All foreign cotton consumption is expected to break a record for the fifth consecutive season from August 2003 to July 2004, according to U.S. Agriculture Department figures.

China is leading the way. Imports are forecast at a record-breaking 4.3 million bales of cotton, more than 25 percent higher than the previous year.