It All Starts With Greige Goods

In 2021, I alluded to my belief that inflation (increase in prices and fall in the purchasing power of money) is going to be coming in hard and fast as we get closer to putting Covid behind us and getting it under control. We should all probably expect to see prices rising on loads of different products that we consume including fabrics.

The basis for this idea is very simple. When the world opens back up PC (Post Covid), there is going to be such pent up demand for stuff that the economy is going to explode to the upside. That is why, contrary to what you would expect to be happening, the stock market keeps going up as stock analysts are always looking at a company’s future stream of earnings to determine where the stock is going.

When the dust settles, a lot of consumers are going to be flush with more cash than normal from all the things that they didn’t do during Covid i.e. travel, entertain, eat at restaurants, etc.

With this all in mind, I want to let you know what’s going on with prices in the textile world. As the title of this blog states, it all starts with the greige goods and that is going to be the focus of this post.

For those of you that aren’t familiar with the term greige goods (pronounced gray), those are the fabric raw materials that are dyed white from their natural state and then printed on using our gorgeous designs.

Lately, the prices of greige goods have jumped dramatically in conjunction with cotton prices. This has made it especially hard for the contract mills that we use to make purchase decisions. As an fyi, our company does not have to invest in greige goods as we had to in the past. Presently, we have agents who give us an all-in price to have our fabrics printed and shipped. That means one less headache for us to have to worry about.

The struggle for the mills is that the prices are fluctuating upward so much that they are having a hard time replenishing their inventory in a big way to keep things flowing as usual. As you can imagine, this is a very tricky game especially if demand picks up and prices rise quickly and get extremely out of whack. Also, with rising prices, more of the mill’s money will be tied up in inventory which could put a crimp on cash flow. In all, quickly rising prices are very problematic.

I am sure you heard about the recent meteoric rise in the stock Gamestop that went from a single-digit stock to over $500 per share. Not that cotton could go up that much, but it can definitely make large percentage moves higher which will send people scrambling and help to exacerbate the current situation. This happened in 2010 as you can see in the chart below.

At Jaftex, we can’t afford to wait and risk not having greige goods as we are printing many lines every single month. As a company, we print well over 250 lines per year. As such, we have been forced to make commitments at higher prices, but at least we know we are covered and we know what our risk is. Sometimes it is just better to be safe than sorry. It’s the known vs. the unknown. Others can play a game of chicken if they choose not to lock in prices, but they can end up paying way more or they can end up paying less. Of course, the paying a lot more is the biggest risk and that can take a serious bite into profits.

Now that you know all that, I want to provide you with 3 reasons why greige goods are going up.

1. The raw cotton crop in the US is not good this year.
2. The raw cotton crop in Pakistan is not good this year either.
3. This year, the US banned Xinjiang Cotton from China due to concerns about forced labor in that region. That has resulted in China being a big user of cotton from other areas and taking up a lot of the supply. As such, the less than normal supply, is being gobbled up very quickly and market conditions are very tight.

No one is going to be happy about higher prices including me, but I felt it was important to tell you what’s going on and why you should expect to see higher fabric prices going forward. Now you can’t say I didn’t warn you.

Have a great week and be safe out there!