A scarcity of commodities such as cotton, sugar and coffee that propelled prices to historic highs late in 2010 is expected to continue into 2011, and it could mean more prices increases for consumers. Cotton, sugar and coffee are seen remaining in recent high price ranges as supplies remain low.
Cotton broke a post-Civil War record in December, as supplies from top producers failed to keep up with demand, particularly China's voracious appetite for the fiber. Cotton futures gained 91.5% for the year; the March contract closed 2010 on the InterContinental Exchange at $1.4481 a pound on Friday.
The run up has led some large clothing manufacturers to increase prices. In December, Hanesbrands Inc. said it will raise prices in the first quarter to offset higher cotton costs, and that it is considering more increases for mid-2011. VF Corp., which produces The North Face, Lee and Wrangler clothing, recently said it expects to "have select price increases across our portfolio of brands next year."
A late harvest in India and lower estimates for stockpile levels in July, when the U.S. crop year ends, have pushed prices higher. Little relief is expected until the next U.S. harvest in fall 2011.
"We're going to be living with historically high prices for the rest of 2011," said Mike Stevens, an independent cotton analyst based in Mandeville, La. "I see nothing on the horizon that would change that, short of severe economic slowdown."
Coffee prices, which hit their highest prices since mid 1997 this year, are also expected to stay high. The emergence of new coffee drinkers in Brazil and China and sustained demand in North America and Europe through the economic downturn were met with lower output from top producers of the prized, mild washed arabica beans. Torrential rain tore through Colombia and Central America this year.
Coffee futures rose 77% this year, ending 2010 at $2.4050 a pound.
The higher prices have led Starbucks Corp., Kraft Foods Inc. and Farmer Bros. Corp. to raise prices for some of their products this year, and more increases may be on the way for other companies.
"While many of our franchises have held their prices steady for more than three years, we expect that some may make modest adjustments to coffee prices in their restaurants," said a spokeswoman for Dunkin' Brands Inc., which owns Dunkin' Donuts. The company uses only arabica beans.
In December, consistently low supplies of arabica coffee prompted the IntercontinentalExchange Inc. to include arabica beans from Brazil, the world's top producer, on its list of grower nations for the benchmark "C" contract. The deal, one decade in the making, is expected to boost liquidity in the market and will take effect in March 2013.
Sugar prices have also seen a dramatic run-up, touching nearly three-decade highs in 2010. The prices are expected to stay strong as India cautiously weighs increasing exports and wet weather hampers the crop out of Australia.
"We need to look at supply concerns," said Sterling Smith, an analyst with Country Hedging. "That creates a situation of vulnerability in the market."Raw sugar futures gained 19% in 2010, ending the year at 32.12 cents a pound.
Cocoa prices saw some gains in December, but haven't risen dramatically despite the ongoing political crisis in top producer Ivory Coast. Many large cocoa companies have said they don't expect the impasse there to affect shipments unless a civil war breaks out. Cocoa futures shed 7.7% this year, ending at $3,035 a ton.
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