Prices cotton onto future supply and demand equation
At a glance
- World cotton production is forecast to increase by 5.7 per cent (pc) in 2021-22.
- Australian cotton production tipped to increase by 57pc to 4.4 million bales, the largest crop since 2017-18.
- Cotton prices have trended higher in recent months driven by the likelihood of a smaller crop in the United States (US) and Brazil, suggesting ending stocks will reach a three year low in 2021-22.
The conditions in Australia
Spring is almost here, and the outlook is already positive for cotton producers. Elders agronomist Millie Bach, based in Dalby shared her thoughts ahead of sowing in Australia’s key growing regions.
“Planting will kick off around mid-October, dependent on temperature and rainfall in Queensland and New South Wales. A large crop is anticipated in both regions, driven primarily by a higher level of water availability and promising prices of greater than $600/bale. Catchments have been replenished by average to above average rainfall in 2021 for key growing regions around Dalby and Western areas through to St George and Surat.
“As we move into the growing season, farmers will be monitoring soil temperatures making sure it’s warm enough to safely plant and there’s adequate topsoil moisture in dryland blocks, hopefully resulting in an even germination across paddocks.
“Mice have been a big issue over the last 12 months and grasshoppers were also a problem last year in young crops, damaging young seedlings. Fingers crossed we can get an early planting this year across the board of irrigated and dryland production areas with limited pest pressure to give us the best chance of achieving above average yields.”
The carryover impacts
The increase in world supply has the potential to put pressure on prices, however since July prices have trended higher on the back of increased consumption rates in processing countries and the forecast of a smaller crop in the United States (US) and Brazil, leading to an increased likelihood of ending stocks reaching a three year low in 2021-22.
Overall, world ending stocks for cotton are forecast to reach a three-year low of 87.2 million bales, a decrease of 5 per cent.
Domestic consumption rates in key processing countries such as China and India are forecast to increase in 2021-22, however, imports to China are forecast to ease. The world’s largest processor, China, is tipped to consume one million more bales in 2021-22, however, most of the increase in consumption will come from existing inventory. China’s ending stocks increased by 5.3 pc in 2020-21, partly a function of higher carry-over from a decrease in consumption in 2019-20 and an increase in imports in 2020-21.
The upside downside
On paper, increases in world production, higher carry-over stocks and a reduction in imports in 2021-22 would suggest downward pressure on prices. However, cotton markets have taken an appropriate longer-term view. Fast forward to 2022-23 and the forecast of lower ending stocks and strengthening demand would suggest cotton will be sought after and have the potential to attract a higher price.
However, the potential elephant in the room is oil prices. Softening oil prices make synthetic materials cheaper to produce, reducing the competitiveness of cotton. Although oil prices rallied from June to mid-way through July, they have since declined and so have futures prices. For the reasons outlined above, oil prices in the past month haven’t impacted cotton but competition from synthetic materials does present a downside risk to cotton prices should the trend continue.
From an Australian perspective the forecast of greater production in a market where prices are trending higher bodes well for the season ahead.
For trusted advice on protecting your cotton crop, talk to your local Elders agronomist.