Family-owned Paul Reinhert AG, one of the world's biggest cotton merchants, is facing a severe liquidity crisis in its US business as a result of losses incurred from a surge in cotton prices earlier this year.
Bloomberg is reporting that it has seen a letter sent by Paul Reinhert Inc, as the US-based subsidiary is known, to farmers detailing that an "unexpected, historic run-up'' in cotton has led to the company being short of "virtually all available cash."
The US government is already investigating this price surge which reached a peak of 93 cents a pound – a jump of 15% – in early March.
However, it is thought that the company used the futures markets to either hedge the risk of price changes or speculate on whether the price would rise or fall.
It is now "operating under a forebearance agreement'' according to the letter, which has been compounded by the global financial crisis.
Paul Reinhert AG is one of oldest family businesses in Switzerland and can trace its roots back to 1788 when it was established as an importer of cotton.
Today it is led by seventh-generation pair Thomas Paul Reinhart and Paul Jürg Reinhart. The company has so far declined to comment.