Cotton industry experts have predicted the industry must return to an average annual crop of two million bales to prevent collapse.
Speaking at this week’s Australian Cotton Conference on the Gold Coast, Cotton Seed Distributors vice chair, James Kahl, put forward the figure as the magic number needed to sustain infrastructure and workforce talent.
It would require the industry to be roughly four times the size of the 2007/2008 crop, or total 200-250,000 hectares.
“Five years ago cotton was the first, second and third crop to grow, but right now we have alternatives,” Mr Kahl said.
“Last month I was driving through California and in the whole distance I saw two cotton crops.
“I saw a lot of cotton gins in mothballs and some that won’t reopen.
“I thought I saw the Australian industry.
“We just need to be really careful, because we are really close to losing it.
“I am as positive as hell, but it is something we have to consider.”
Beyond drought, market analysts predict that producers can still capture good prices that would help see large Australian crops, with the help of savvy forward-selling, despite the long-term average price being poor.
Adviser Matthew Leeson, Independent Commodity Management, Moree, said the average price in recent years has been a disappointing $443/bale.
“The reality is, there is no producer in Australia - even with the higher value for their cottonseed - who can profit at that level,” Mr Leeson said.
“If you go into a season looking to strike an average price, it is reasonable to say you are going out of business if that is the best you can look forward to.”
For instance, using last Friday’s exchange rate and price figures, Mr Leeson said cotton for a May 08 contract was $397/bale. However, Friday’s figures for May10 are much healthier at $507/b.
However, he did note that much of the industry is in a difficult position to forward sell given the drought, with the exception of producers at Emerald.
“Obviously a lot of producers can’t sell forward at the moment but I urge producers to take this position anyway.”
He said this would be continually important as polyester continued to wrestle market share.
“In 1996, cotton consumption outstripped polyester by 27 million equivalents,” he said.
“But polyester is on a real roll.
"Every year, cotton is losing market share, even though it is increasing consumption.
“In 2002 we were on even pegging with polyester and in 2007 the tables turned, with polyester outstripping cotton by 10 million bales.”
He said had cotton maintained its market share from 1996, consumption would currently be 150 million bales worldwide, compared to production of 125 million bales.
“We too, could be participating in the 200pc price performance being seen in corn and wheat had that been the case.
"Sadly it is not.”
It is for this reason, as well as a large increase in world yields, that he believes cotton has had difficulty gaining the same rapid price gains that have been experienced in corn and wheat.
“Let’s not live in our own little bubble and think that with rising oil prices cotton prices have to go up, because that is not the case.”
However, he did note there is positive news on the horizon, with the stocks to use ratio, tipped to fall in the year ahead.
“If consumption holds in the northern hemisphere we would expect stocks to use ratio to be below 100pc for the first time in 10 years, a reasonably significant statistic.”
Email a friend
Favourites
Del.icio.us
Facebook
Digg
StumbleUpon
MySpace
Reddit
Newsvine
LinkedIn
Kwoff