California drought: LA braces as cotton acreage falls

Drought and water shortages could push California's cotton acreage to its lowest levels since the early 1930s, and that could become a problem for yet another industry that the state currently dominates—high-end apparel manufacturing. (Tweet This)

California accounts for most of the U.S. production of an economically important, high-end type of cotton called Pima. A reduction in the crop could spell trouble for the local apparel makers—many of them in Los Angeles—that are already bracing for the state's first mandatory water reductions.

"There's going to be some major impacts into our company, primarily as a result of the water problems that California is having," said Jeff Shafer, CEO of Agave Denim, which makes and processes denim jeans and other apparel in LA area factories and laundries. "I expect laundries will have less water available to them and will likely have price increases, or surcharges for water consumption."

Read MoreThirsty? 'Toilet to tap' gets real in California

Pima cotton, also known as extra-long staple cotton, is used mostly in high-end clothing including jeans, dresses and shirts as well as home goods such as towels and bed sheets. It commands a higher price than so-called Upland cotton, which is the most commonly produced cotton in Texas, Georgia, Arkansas, Mississippi, the Carolinas and Alabama.

The drought has not yet pushed Pima prices higher, thanks to a holdover of supply that still exists overseas and elsewhere, but higher prices could be coming.

California represents about 95 percent of the U.S. Pima cotton production. And in Los Angeles, apparel overall ranks first among all industries with nearly 3,000 companies—including design, manufacturing and wholesaling, according to the Los Angeles County Economic Development Corp. The city is the nation's second-most important textile manufacturing area, after the Carolinas.

Approximately 75 percent of the premium denim market comes from Southern California, according to the California Fashion Association, an industry trade group.

American Apparel is headquartered in Los Angeles and has cutting, sewing, knitting, manufacturing, dyeing and finishing facilities in the area. Besides Agave, other major clothing companies with a significant LA design or manufacturing presence include Guess, True Religion and Trina Turk.

Up to 2,900 gallons of water are used to produce an ordinary pair of jeans, according to the Environmental Protection Agency. Agave's Shafer said one way the industry is cutting back on water is using an ozone process for jeans, which is considered "an eco-friendly process, as opposed to bleach." Moreover, Shafer said companies are incorporating recycled cotton and polyester materials into fabrics, as well as blending with Lyocell, a form of rayon that is created with wood pulp.

The USDA forecasts California's Pima production will drop to 155,000 acres this season, down 26 percent from 210,000 acres a year ago. That would represent the lowest California cotton acreage since 1932.

Read MoreTo beat drought, Santa Barbara tries tapping the Pacific

"It's a matter of limited water we have and where we put it," said Mark Watte, who farms cotton, almonds and other crops in California's drought-stricken San Joaquin Valley. "Cotton is quite a ways down in the pecking order. Our tree crops is where the water goes first."

Watte cut his cotton acreage this year by about 50 percent to 500 acres, meaning it will account for just one-sixth of the family farm's total acreage. The farm has historically had 60 percent of the acres growing cotton.

"Last year we were able to cobble together water and limped to the finish line," said Watte. "This year we will have significant acreage that will not be farmed in the summer."

Mark McKean, who has been growing cotton since the 1970s, said his farm in Riverdale, California, is "going to be at zero (water) allocation this year. I will be pretty much 100 percent groundwater this year, the way it's looking."

So far this year, two cotton gins in California's Central Valley have shut down due to falling production levels. There are about 30 gins remaining in the Golden State, down from about 65 gins five years ago. The majority of California's cotton crop is exported to mills for processing and returned as fabric and yarn.

Government figures show U.S. Pima prices were at $1.5073 per pound in March, down roughly 10 percent from year-ago levels. Upland cotton prices have declined 23 percent over the same period, but those declines reflect global markets, especially China, which is holding large cotton surpluses.