'People are going to paying a lot more for their Levi's': Commodity analyst

Jack Scoville, Price Futures Group Analyst, joins Yahoo Finance to discuss the commodity price surge.

Video transcript

SEANA SMITH: Commodity prices are on the rise. Surge in demand colliding with poor weather, shipping bottlenecks. Cotton is just one example of this. And taking a look at the chart-- and you can see it on your screen-- in the past two weeks, the price has actually skyrocketed 20% over the past month. It's up just around 15%, hitting its highest level this week that we have seen in about 10 years.

So here to talk more about that, we want to bring in Jack Scoville. He is an analyst at Price Futures Group. Jack, it's good to see you. I guess, do you see this price momentum, this momentum that we're seeing to the upside, slowing down any time soon?

JACK SCOVILLE: Well, it's got to slow down a little bit. The rally has been really, really exceptional. And it's hard to rally $0.09 in two days, basically, which is what we did, and not get at least a little bit of pullback from it. But be that as it may, the fundamentals behind the higher prices are still real strong. And the outlook for higher cotton prices is still really, really intact. I've heard objectives of 115, which we almost hit this week, and then maybe 125, which would be a huge high if we were to get that high. So, there are still potential prices. There are still potential price gains to be had out there.

BRIAN CHEUNG: Now, as a follow-up, can you explain to us the dynamics of demand for cotton? Because people who may be following commodities markets might be thinking of oil. They don't really know the dynamics of what the cotton market is like. I understand China is a big part of that. They're a huge consumer of clothing. So what does the demand picture on that side of the world look like from your view?

JACK SCOVILLE: Well, cotton is basically an export market. We consume very little cotton here in the United States. Most of our clothes are actually made overseas in Southeast Asia or in China. And our cotton gets exported to these countries or maybe Central America to be made into clothes that are sent back to the United States and sold here as clothing and used in places like China and Southeast Asia, throughout Latin America as well. So it is a huge export market. And the exports play, really, the major part in this demand.

China, over the last several weeks, has become a huge buyer. They have some concerns about their own production. They had a lot of rain this season in cotton growing areas, which can do a lot to really hurt the fiber quality and destroy the actual cotton fibers in the balls before you can get them picked. And that's hurt the demand.

Also, of course, there's been some political reasons for it. A lot of Western countries, including the US, really railing against China and their forced labor policies in regards to their own cotton production and not willing to take much in the way of Chinese cotton or products based, clothing based with Chinese cotton inside. So, China's been forced to import more cotton just for that reason alone.

So, it's been a pretty dramatic demand shift because of the lack of production here, around the world, in China and India-- India another major world producer with a lot of weather issues. And we've had some weather issues here as well, especially in West Texas, where we had some very dry weather earlier in the year.

SEANA SMITH: Hey, Jack, real quick, what does this mean for our viewers and the consumers out there? Are prices going to rise?

JACK SCOVILLE: Oh, absolutely. And not only because the price of cotton is going up, but that's certainly a major reason why the price of clothing is going to go up. But you have to think back and all the other reasons why we're talking about inflation and other things going on. The cost of freight, container freight, bulk freight has really, really jumped here lately. And that's made exports of cotton that much more difficult and made it more costly to get these clothes back in the United States. And there's all sorts of other logistical problems that way.

So I expect to see higher prices for cotton. I expect to see higher prices for the products cotton is made from, the clothing that we're going to be buying here in the next several months. And I think that we're just starting to see, really, the tip of the iceberg with the cotton prices. I think eventually, it will really spread through the chain and to the clothing stores. And people are going to be paying a lot more for their Levi's and everything else.

SEANA SMITH: Jack Scoville, analyst at Price Features Group, thanks so much for taking the time to join us today.