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Crops |
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Livestock |
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Energy |
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Metals |
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| Cotton | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Max Foster |
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| World cotton prices decline | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| World cotton prices have declined sharply in recent months, as the global financial crisis has deepened. In early December 2008, the world cotton indicator price (the Cotlook ‘A’ Index) was US55 cents a pound. From around US78 cents a pound in early September 2008, the indicator declined to as low as US51.8 cent a pound on 21 November 2008, despite a substantial reduction in world cotton production in 2008-09 and expectations that world cotton production will be lower again in 2009-10. With economic uncertainty reducing demand for all textile fibres, the cotton indicator price is forecast to average US69 cents a pound in 2008-09, down US3.9 cents a pound from 2007-08. This forecast implies a substantial rebound in world cotton prices in the remainder of 2008-09, an assessment based on the expectation of low world cotton supplies over at least the next 18 months. Returns to cotton growers in Australia have been partly cushioned from the sharp decline in world prices in US dollar terms by the depreciation of the Australian dollar. Nevertheless, by early December 2008, the forward price on offer to Australian cotton growers for 2008-09 production had fallen to $370 a bale for the standard Australian grade, down from the year to date average of $430 a bale. |
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| World cotton harvest in 2008-09 largely known | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| World cotton production is forecast to be 24.6 million tonnes in 2008-09, down 1.6 million tonnes compared with 2007-08. The decline largely reflects lower production in the United States, and also in Brazil, China, Turkey and Uzbekistan. With the 2008-09 northern hemisphere cotton harvest largely known, market attention is shifting to the cotton crop prospects of the comparatively small southern hemisphere producers. Lower Brazilian cotton production in 2008-09 is expected to be largely offset by increased production in Argentina and Australia. At this early stage, world cotton production in 2009-10 is forecast to fall further to around 24 million tonnes, mainly because of another decline in US cotton production. Various forms of government subsidies for the cotton industries in China and India will probably ensure production remains high in those countries in 2009-10, despite lower cotton prices. |
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| Uncertain demand for cotton in 2008-09 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The global financial crisis has adversely affected the demand for all textile fibres. The declines in cotton prices since mid-September 2008 have been largely matched by declines in the prices of the artificial fibres which compete with cotton, most importantly polyester. A contributing factor to the decline in artificial fibre prices has been the fall in world oil prices, because oil derivatives are feedstocks in many of the artificial fibre production processes. Reflecting the effects of economic uncertainty on textile and apparel demand, and lower artificial fibre prices, world consumption of cotton in 2008-09 is forecast to decline by 7 per cent compared with 2007-08. This follows little growth in world cotton consumption in 2007-08, when high prices limited use. Low or negative consumption growth is unusual as world cotton consumption grew at an average rate of 4.3 per cent a year over the 10 years to 2007-08. |
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| Cotton consumption still outstrips production in 2008-09 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Despite the forecast decline in world cotton consumption in 2008-09, reduced world cotton production means carryover stocks are likely to decline in 2008-09 and are forecast to be 13 million tonnes, 3 per cent less than in 2007-08. The expectation of lower cotton carryover stocks in 2008-09 mostly reflects a forecast 0.8 million tonne reduction in US cotton stocks, partially offset by a forecast 0.4 million tonne increase in Chinese cotton stocks. |
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| Governments supporting their cotton industries | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government arrangements in the main cotton producing countries are supporting their cotton industries through various measures. In China, purchases by the China National Cotton Reserves Corporation, combined with cotton import quotas and a variable import levy, are supporting local seed cotton (unginned cotton) prices at a level equivalent to around US80 cents a pound. China is offsetting the effect of high seed cotton prices on the competitiveness of its textile industry by increasing export tax rebates, lowering other charges and funding investment in technological improvements. The export tax rebate increased from 11 per cent in July 2008 to 14 per cent in November 2008. The Indian Government increased its minimum support price for cotton in 2008-09 by between 40 percent and 45 per cent, according to cotton grade. This implies an average support price of around US69 cents a pound. In the United States, average farm prices in November 2008 fell below the national loan rate under the US farm program. The bulk of US cotton production in 2008-09 will be put under loan. This is not unusual, even when farm prices are above the loan rate, because the US loan program operates as a virtual first advance payment arrangement until cotton is sold by growers. |
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| Improved 2008-09 production outlook in Australia | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The irrigation water situation in the cotton growing regions of Australia has improved substantially in 2008-09, but will still limit Australian cotton production. The area planted to cotton in Australia in 2008-09 is forecast to increase to 154 000 hectares, 144 per cent higher than in the 2007-08 season, but still well below the peak plantings of 562 000 hectares in 1998-99. The forecast for 2008-09 plantings takes into account the heavy rainfall received in most cotton growing regions in November 2008, which has considerably improved stored water levels, particularly in the St George, Darling Downs and Macintyre growing regions. With the planting window for cotton generally considered to close on 17 November, apart from in the more northerly Burdekin region, it is unlikely further rainfall will see additional cotton plantings in Australia in 2008-09, especially given the recent decline in world cotton prices. Australian cotton production in 2008-09 is forecast to increase to 281 000 tonnes, more than double the 2007-08 harvest, which was the smallest since 1982-83. The Australian cotton crop is mainly harvested in the period between March and June, which means it is typically exported across two financial years. The levels of cotton production in Australia in 2007-08 and forecast for 2008-09 imply Australian cotton exports in 2008-09 of around 158 000 tonnes. This is the smallest volume of Australian cotton exports since 1983-84. Australia’s record cotton exports were 834 000 tonnes in 2001-02, a year when Australia was the second largest cotton exporter in the world behind the United States. A decision by the state government in Western Australia in November 2008 has cleared the way for the commercial growing of genetically modified (GM) cotton in the Ord River irrigation area in northern Western Australia. This follows a decade of successful field trials. The total Ord irrigation area currently developed is 14 000 hectares. Some land may have become available for cotton growing because of the end of sugar cane growing in 2007, which at one stage accounted for around 4000 hectares. However, large scale commercial production of cotton in the Ord area will probably have to wait until a second stage of development occurs involving the release of an additional 30 000 hectares suitable for irrigation, roughly half of which is located in the Northern Territory. A decision whether to proceed with the second stage development has not yet been made. |
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