Cotton Merchants Seek US Government Support To Stem Defaults
February 13 2012 - 8:28AM
Dow Jones News
Some of the world's largest merchants of cotton are seeking
support from the U.S. government to stem a wave of contract
defaults that resulted from a sharp swing in the fiber's price last
year.
"We are looking for some assistance from the government any way
we can get it," William May, president of the American Cotton
Shippers' Association, told Dow Jones Newswires on the sidelines of
a cotton conference in Fort Worth, Texas Saturday. "We've got
millions of dollars worth of cotton contracts that...have not been
executed."
ACSA's members include Cargill Inc., Noble Group Ltd. (N21.SG),
Olam International Ltd. (O32.SG), Allenberg Cotton Inc., a unit of
French trade house Louis Dreyfus, and Ecom Agroindustrial Corp.,
among others, May said.
The total value of the defaulted cotton is still being tallied,
but May said it is in the "hundreds of millions of dollars," and
between 3 to 5 million bales. That figure would mean the defaulted
contracts would represent 20-30% of the 15.67 million bales
produced last fall by the U.S., the world's top cotton
exporter.
Cotton prices hit a record $2.27 a pound last March as demand
soared and supply suffered amid bad weather in some grower nations
like Pakistan.
But prices tumbled when demand wilted at the high prices,
falling nearly 60% by the end of 2011 from the record peak. Many
mills cancelled cotton orders that had been placed at the higher
prices as much as a year in advance. The price swing crushed
margins at apparel companies, commodity firms and textile
mills.
The Liverpool, U.K.-based International Cotton Association,
which sets the rules for most of the world's cotton trade, said it
received a record 242 requests for arbitration in 2011.
Cotton mills and merchants prefer ICA arbitration over courts in
each country because the process is often faster, more uniform and
less expensive. Between 2000 and 2010, ICA said it received an
average of 45 requests per year.
But in a shift, ACSA said it will jointly seek support from the
U.S. government along with the National Cotton Council, an industry
group, and an association of U.S. cotton cooperatives, known as
Amcot.
The effects of the defaults have been felt since they began in
the second quarter of 2011 and now into 2012. "This is going to be
continuing probably, until all of these high-priced contracts are
taken care of," said Phil Bogel, chairman of ACSA and a cotton
trader at Toyo Cotton Co. in Dallas.
The cotton groups plan to meet with members of the U.S.
Agriculture Department and the Office of the United States Trade
Representative to ask for "government-to-government" meetings with
countries whose textile mills have defaulted on contracts, May
said.
-By Leslie Josephs, Dow Jones Newswires; 347-366-1345;
leslie.josephs@dowjones.com
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