Australian Cotton Farmers Are Bullish About The Market

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Australian cotton farmers are experiencing their best growing season in a decade as soaring prices, strong indicators of forward demand and large crops unleash a boom for producers despite China’s informal ban on Australian cotton. Cotton production fell to its lowest level in 37 years just two years ago as drought conditions ravaged water-intensive crops.

Cotton grower Gus O’Brien says the local cotton industry is experiencing the perfect trifecta. But prices have ramped up quickly to their highest level in a decade because of explosive demand from the garment industry and constrained supply from producers in US cotton-growing regions hit by hurricanes and dry weather. With ample water supplies now available, growers are making the most of robust conditions.

At the same time, cotton has become a weapon in the trade wars. The Trump administration banned Chinese cotton imports grown in Xinjiang, citing labour abuses. That ban remains in place. In October last year, spinning mills in China were told to stop buying Australian cotton, but there is no evidence that edict was formalised in the same way as Beijing’s punitive tariffs on Australian wine and outright ban on coal.

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“It’s the trifecta of price, hectares and water availability, and we’re seeing all of them. They don’t happen to come along very often.”

Struggling to keep up with demand
Demand for cotton has been strong, particularly in China, where appetite for the textile commodity has been so high that importers have been forced to turn to Australian imports, Chinese trade data shows. Like many commodities, cotton prices were rocked in February and March 2020, tumbling to the lowest level for a decade amid concerns that COVID-19 would devastate the global economy and the apparel industry.

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But the rebound has seen the price more than double in the past 18 months as farmers struggle to keep up with demand and the pace of future deliveries. Two years ago, Australia produced 600,000 bales of cotton, its smallest crop since 1983. In 2020, the output grew to 2.9 million and this year it is expected to reach 4.5 million bales, generating AUS$ 3 billion of export income.

Critically, the availability of water to growers has allowed farmers to transact far in advance, knowing they will be able to sustain a crop. “It’s especially good for the guys who can sell two or three years ahead,” Cotton Australia chief executive Adam Kay said.

“The crop that’s being planted in the next few weeks, close to 40-50% is already sold before it even goes in the ground. The water’s in the system and they know they can get a crop.” “Prices in the last 30 years have only been above AUS$ 600 a bale about 10% of the time. We’re in rare air above AUS$ 650,” Kay said.

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The strength of the cotton price has come at a welcome time for growers, who will be forced to pay more for labour over the summer as the extended Australian border ban keeps backpackers and migrant labour out of action this season.

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