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Cotton surplus expands to global record

The fourth straight year of surplus cotton output and the biggest drop in Chinese imports since 2000 are creating record global inventories, signalling higher profits for the makers of Hanes underwear. Hanesbrands, the Winston Salem, NC based maker of Hanes underwear and Playtex bras, said that its cotton costs dropped 49 per cent in the second quarter. The company raised its full-year earnings-per-share forecast from $3.50 to $3.65, from $3.25 to $3.40. Net income at Levi Strauss & Co., the San Francisco-based maker of Levi's jeans and Dockers apparel, more than tripled to $48 million in the second quarter, mainly due to lower cotton costs, along with higher sales and more-profitable products, Chief Financial Officer Harmit Singh said.

China, which uses about a third of the world's cotton, will reduce imports by 46 per cent, or 9.33 million bales, from last year as it focuses on supporting local producers. It is accumulating the biggest stockpiles ever after the government bought supply to aid farmers as growth slowed. The USDA's prediction for Chinese imports is about twice the drop it expects in global output, at a time when crops are improving across the U.S., India, Brazil and Australia.

We expect weak Chinese demand and high global production to continue weighing on prices," said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors. "The Chinese economy is slowing and export growth has been weaker than we expected for textile mills and other manufacturers."


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