One of Australian cotton’s biggest advantages is the fortunate timing of when it comes to market.
Some years, this timing can be hindered by the July/December Futures inversions on the ICE exchange, complicating buying strategies for the merchant, but this year’s situation has been one of advantage, not only for the merchants, but growers as well.
We have seen strong demand from overseas customers continue throughout the marketing season from most of the traditional markets with the main market continuing to be China.
The period between May to October is always a crucial time for Australia as it is often the only remaining high-grade growth still available, in volume.
Some years, this demand can be muted by the remnants of the US high-grade crop, which are often sold far in advance, and, in some seasons, this can take away some demand for the Australian crop.
This year however, we had the ‘perfect storm’ of circumstances, with smaller crops occurring in India and Brazil and both high demand and aggressive selling of the US crop in the early part of the marketing season at the end of 2016 on into Quarter 1 and early Quarter 2 of 2017.
This created an unexpected high-grade shortfall that worked to the advantage of the Australian cotton market.
One of Australian cotton’s key competitors when talking about the high-grade market is the upland crop, specifically from California and Arizona.
Fortunately, due to several factors, the main one being the prevailing drought, these two crops totalled only 135,000 metric tonnes, and were sold out much earlier than normal.
This opened the window for Australian cotton earlier than usual, and provided a near competitive-free environment.
So, given the lack of available high-grade stocks in the market, what does this actually mean for the Australian crop?
The most beneficial thing we have seen is a firming of the basis over the last year, with the basis moving from the 400 - 600 “on” ex-gin level in Quarter 3/Quarter 4 last year, to 800 “on” in Quarter 1, then continuing to rally over 1000 “on” in June/July, settling where it is now around 1200 “on”, net of P&D’s, for recaps in the recent weeks.
Normally, one would anticipate this to cool off due to the arrival of the South Texas crop, which is now being harvested and ginned, but Hurricane Harvey has reared his ugly head, creating havoc and mayhem all along their coastal region, where open cotton still remains.
At this point, it’s anyone’s guess when we will see any sort of normalcy out that area, so we expect to see continued good demand for Australian prompt shipments, at least until early October.
It has been a wild and crazy year, with all outside events supportive to Australian cotton.
All we can do is hope for similar marketing conditions next season.