It’s a good new story for cotton at the moment - prices are above average, plantings are up, consumption is up and from a gross margin point of view, it’s a very logical crop to be planting.
Looking outside of Australia, demand has been robust with the US crop selling at a rate of knots this season and globally, shipping lines are reporting the best conditions in years with lines servicing Europe and Asia filled to the brim.
The global growth story for cotton is looking better and with stronger universal growth comes stronger cotton consumption. In June, the International Cotton Advisory Committee in their press release predicted consumption at 24.60 million metric tonnes - up from 24.46 million metric tonnes. For Australian cotton, our basis competitiveness this season has allowed merchants to sell into many markets - China, Vietnam, Indonesia, Turkey, India and Bangladesh among the main buyers.
Cotton prices have been at their best levels in recent years, attracting global acres away from other crops into cotton. Production is currently forecast at 24.01 million metric tonnes which is up from 22.89 million metric tonnes for the 2016/2017 season. Northern hemisphere plantings are well and truly under way with the US planting under very favourable conditions and is 63 per cent planted as at the 31st of May. Cotton sowing is also near completion in Northern India and China.
Chinese Reserve sales continue this season, with ending stocks down 17pc to 9.2 million metric tonnes.
Most pundits are looking at the global supply and demand situation as two halves, world ex-China and China. China continues to destock its reserve scheme selling 5.63 million bales to date out of a possible 7.97 million bales. It is thought that China is comfortable holding about 20 million bales in their reserve and with some 40 million bales on hand, destocking will continue in 2018/2019 and some expect that they will start importing more foreign growth cotton in 2019/2020 - a great sign for the well appreciated high-grade Australian cotton.
Locally, the season has been difficult, initially a cold start followed by an incredibly warm and dry January and February. This has left its mark and is currently being played out into export markets. We are seeing higher than normal micronaire, more leaf and an elevated quantity of Middlings. Yields have been seen to be down 20 per cent when compared to last season.
Shipping of the Australian harvest has been off to a slow start with May not boasting our general ability to meet average shipment capacity. The slow start has had a flow on effect into June and July leaving shipping space tight - a tightness not seen for the past eight years. With all gins now up and running we will pick up shipment pace which will be a welcome relief to the spinning mills keen to get their hands on Australian cotton.
