The strong dollar reduces demand for US textiles - especially cotton

All world trade in raw cotton is US-dollar denominated. So, with respect to raw cotton, the foreign grower always, at least in recent years, has had a substantial margin related to the exchange rate that enables him to price his fiber on the world market much more aggressively than our producers can and turn a profit.

The other way we're affected in a major way, perhaps the most important way, is the cotton textile imports, which are coming into this country at dramatically higher rates in recent years., As the Asian economies and currencies have collapsed, we've seen a big increase in cotton textile imports, particularly since 1997.

We have asked our economists to look at some of these trends, and we believe that there is essentially a one-to-one relationship between the change in the exchange rate for the dollar and the rate of increase in cotton textile imports. Said another way, each one percent increase in the dollar exchange rate produces about a one percent increase in the rate of cotton textile imports.

So, we've had a major disruption in our market as a result of this because, as these imports come in, obviously, there's a corresponding reduction in the rate of U.S. mill cotton consumption.

USDA constructs an agricultural trade-weighted index with 1995 being the base year. That ag trade-weighted index now stands at 133 or it did a week or so ago. If you look at Asian currencies alone - this is where most of our competition comes from - that index would be 144. This is a major exchange rate difference and it is causing some major disruption in the textile industry in this country. For the year 2001, we project cotton textile imports will approximate 17 million bale equivalents.

Obviously, these products come into the country in the form of manufactured or semi-manufactured products but we think in terms of bales. We believe that if there had not been a change in the exchange rate since 1995, we would have seen that level of imports at 13 million bales. So, that would been a 4 million bale difference.

We asked our economists to net out the effects of NAFTA and CBI because a lot of this trade is our own product coming back to us. In other words, we're sending cut parts and sometimes fabric into these regions to be cut and sewn and sent back to us in the form of manufactured products - apparel, home furnishings.

When you net out the effect of the NAFTA (North American Free Trade Agreement and CBI (Caribbean Basin Authority) trade, we've still got a major change, 11.6 million bale equivalents, and, without the dollar change, that total, we believe, would have been 8.6 million bales.

We've also asked our economists to look at the elasticity coefficients and tell us what they think the rate of US mill consumption would be in 2001 if we hadn't had any change in the value of the dollar since 1995. They say we'd have 12.3 million bales of consumption by domestic mills. In June, the annualized rate of consumption was 8 million bales.

That difference between 8 million bales and 12.3 million bales would cure a lot of what's wrong with this domestic textile industry and what's wrong with the United States cotton industry.

Since January, we've seen 45 textile mills close in this country, 45 plants. Related to those closures is 15,000 jobs lost. If you look at Bureau of Labor Statistics data, they'll say 39,000 textile workers lost their jobs since the first of the year. That's true and it's related to cutbacks as well as mill closures.

But just in mill closures, we've seen 15,000 jobs lost in this country. We've got bankruptcies by companies whose names are synonymous with textiles in this country. These are not marginal operations. These are the biggest names in U.S. textiles. You'll recognise them as Fruit of the Loom, Fieldcrest Cannon, Spartan Mills, Thomaston Mills. These are major organisations that have either closed or they’re operating under Chapter 11. Our merchants are afraid to sell cotton to a mill these days for fear that they aren't going to get paid. If they don't get cash, they don't really want to sell the cotton.