Favourable projections for Australian cotton

Increased demand for Australian cotton


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The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) recently forecast that cotton production in Australia was set to rise by four per cent this season.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) recently forecast that cotton production in Australia was set to rise by four per cent this season.

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A medium-term outlook of the cotton market shows promising signs for Australian cotton growers.

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Australian cotton growers will be happy to know that despite predictions of a volatile market in 2018, the medium-term outlook shows promising signs with foreign implications likely to drive up demand.

Rabobank commodity analyst Georgie Twomey, Wagga Wagga, expects the current speculator and unfixed mill positions to help support the global cotton price through the first half of 2018.

“The near-record long position held by speculators in addition to the unfixed mill positions have been driving factors in the market so far this year, and will remain influential - particularly through until July, which although providing support to prices, could also lead to some volatility in the market,” she said. 

“Global cotton supply remains plentiful, however with the 2017/18 US crop at an 11-year high and current prices likely to encourage another large crop, for prices to remain supported, demand will need to meet what are some very high expectations.

“While there are some factors like improved global growth that will help consumption growth this season, the higher price environment may also pose a risk to this improvement.”

Tamworth Rabobank senior manager Denevan Ellis with Rabobank commodity analyst Georgia Twomey, Wagga Wagga, at a cotton market presentation evening in Moree last week.

Tamworth Rabobank senior manager Denevan Ellis with Rabobank commodity analyst Georgia Twomey, Wagga Wagga, at a cotton market presentation evening in Moree last week.

Looking towards the 2018/19 and 2019/20 seasons, Australian growers can expect an increased need for cotton imports in China and a decreased export from the United States due to tightening weather conditions.

“China’s stockpile is on track to return to ‘more normal levels’ and lift the gap between the amount of cotton China produces compared with the amount it consumes, thus increasing China’s need for imports,” Ms Twomey said.

“China remains Australia’s largest market and a return to some higher import volumes will be positive for Australian cotton.

“Over the last five years we've seen this story of stock accumulation play out and we see those stocks start to decline.

“As the stocks in China start to get more to a comfortable level we expect to see their imports start increasing again.

“They've been at about the four to five million bales mark over the last few years, and we believe that they've got about a ten million gap between what they produce and what they use at any one time, so that extra five million bales, or potentially more, will need to be imported and traditionally we have a fairly strong market share in their imports, at about 20 to 25 per cent.

“Australian cotton is renowned for its quality and any increase in demand for cotton in China and/or smaller-than-anticipated competing crops, open up the opportunities for the fibre.”

“While intentions may be rising for strong cotton plantings in the US, weather conditions are at this stage a factor to watch as there have been some very dry conditions, particularly in Texas. 

“While there is still time for this to turn around before the Spring planting kicks off, it does place a little question mark over the crop size for 2018/19 in the US.”

Australian cotton seems to be going from strength to strength, evident in the expansion of the areas in which it’s grown and the number of people growing it, highlighting the fact that Australia will be well-placed to fill this increased demand in the medium-term.

Approximately 3,000 hectares of dryland cotton was planted at Strathmore Station in Queensland’s Gulf Country in December 2017, while trials were conducted earlier that year in the Kimberly’s Ord region of Western Australia. 

In the 2017/18 season, the Murrumbidgee region of NSW planted 67,304 hectares of cotton making it the biggest cotton growing region this season and in the past 8 years, the number of farms in the Murrumbidgee growing cotton has increased from 52 to 244.

With the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) recently forecasting that cotton production in Australia was set to rise by four per cent this season, it’s a clear demonstration of the strength and diversity of the industry. 

Ms Twomey said having more markets available in the medium term would be important for the expanding Australian cotton industry.

“Those factors are indicative of the fact that the profitability in the cotton sector has certainly been encouraging expansion, encouraging further growth and we will expect that to grow,” Ms Twomey said.

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