Continuing dry conditions over successive seasons and low inflows into river systems and storages across the state resulted in negligible surface water allocations available for cotton production. This resulted in one of the smallest crops in the State’s history and the smallest crop at a national level in more than 40-years. Total output of the industry was estimated at $249 million, down 71% year on year.
Domestic cotton prices were relatively strong over the course of the year supported by increased global consumption eroding global inventories, strong local basis driven by US-China trade tensions and punitive tariffs applied to US cotton exports. Erosion of consumer demand and closures of spinning mills in Asia due to COVID-19 saw much of these gains in supportive fundamentals dissipate as ending stocks posted the second largest year-on-year increase on record.
The Australian Cotton Research Institute (ACRI) is owned by DPI and is located between Narrabri and Wee Waa in the centre of one of NSW's main cotton production areas. The facilities are shared with the CSIRO Agriculture and Food.
Research at the ACRI has played a key role in the development of cotton in NSW and Queensland. Scientists at ACRI are assisting the cotton industry to develop a sustainable future based on productivity and best practice natural resource, disease and pest management.
Research conducted by the DPI Soil and Water team shows a continual improvement in water productivity in the Australian cotton industry.
This has been part of a national collaborative project with the Cotton Research & Development Corporation (CRDC) where DPI completed a study on the improvements in water productivity in the cotton industry over recent decades.
Less water required to produce cotton is the result of improved irrigation efficiency by reducing evaporation and seepage during storage and transmission.
Cotton harvesting was underway at the Australian Cotton Research Institute (ACRI), Narrabri in June 2020.
DPI researchers are in the final year of a sub-project of the More Profit from Nitrogen cotton research project, investigating management strategies to improving cotton nitrogen use efficiency.
This research is supported by funding from the Australian Government Department of Agriculture, Water and the Environment as a part of its Rural R&D for Profit program, Cotton Research and Development Corporation (CRDC) and NSW DPI.
With little to zero regulated water allocations and limited carry over water, the State’s cotton production fell to an estimated second lowest level on record in NSW at just 418,000 bales. This represented 71% of the national crop which also recorded its lowest production on modern record, reflecting the harsh seasonal conditions throughout the season in Australia’s other major cotton producing state, Queensland. NSW production was estimated only just above the lowest production year in 2007-08 when 409,000 bales were produced in NSW 10.
Yields were estimated at 9.9 bales per hectare, 7.5% higher than the 10-year moving average, as growers generally took a risk off attitude to the season and plantings only accounted for the water known to be available 10.
While yields have generally been higher over the past decade, they have also demonstrated greater variation which is attributed to the changing geographical growing area, seasonal conditions and year to year risk appetites.
The majority of the cotton grown was achieved with the slim carry over water entitlements, any on-farm water reserves and more significantly groundwater allocations which made up the majority of the production. The southern half of the state was a major cotton production region, second only to the Namoi valley, with a combined 150 thousand bales estimated to have been produced in the southern production valleys 50.
Cotton futures prices have been following a steady downward trajectory since mid-2018 when China imposed retaliatory tariffs of 25% on US cotton imports 125. This placed pressure on US cotton prices and indirectly to Australian cotton prices. Mitigating the decline for Australian prices has been a declining Australian dollar exchange rate and tariff free access to China for Australian cotton which has helped support local basis.
Prices briefly rose between August 2019 to January 2020, which then corrected as the COVID-19 pandemic triggered prices to slump 104. The correction was attributed to a drop in both consumer and therefore spinning mill demand as the global economic fallout of COVID-19 became apparent.
Unfortunately, some growers were forced to wash very competitive supply contracts with cotton merchant Weilin Trade Pty Ltd which was forced into administration due to downstream supply chain issues. As a result, producers that had committed cotton to Weilin are likely to receive a much lower price for cotton in the current COVID-19 environment 18.
National cotton exports declined by 62%, a direct result of the declining production levels over the past two years reducing carryover stocks significantly. China remained the major export location, commanding 63% of national exports at a value of $611 million 94. Australia’s exports of cotton to China benefitted from the recent US-China trade wars, with strong export demand despite the much smaller crop 94.
A lack of supply of cotton made it difficult to service the increasingly diverse range of export markets 94. However, the trend has seen Vietnam and Bangladesh picking up a larger share of national cotton exports over the past four years with exports averaging 15% and 11% respectively over this period 94.
Estimates are that global production dramatically outstripped consumption by more than 19 million bales, the second largest supply demand gap on record. This led to global ending stocks edging closer to near record levels at approximately 95 million bales 138. This was attributed to the high global production levels and a buildup of inventories as spinning mills reduced output with the emergence of the COVID-19 pandemic 8.
The largest changes to cotton ending stocks occurred in India which added around 8.2 million bales, the United States added 2.3 million bales, while Brazil and China increased stocks by 1.7 and 1.2 million bales respectively 138. These four countries combined were estimated to account for approximately 73% of global cotton stocks 138.
India’s stocks rose sharply due to a variety of reasons including an impact on consumption due to COVID-19, export and quarantine restrictions with neighboring countries such as Pakistan and Bangladesh and the countries Minimum Support Price (MSP) scheme, which is estimated to account for half of India’s closing stock levels 136.
These large stock levels, while not record breaking, added significant pressure to cotton prices, albeit offset somewhat by strong demand in the form of relatively high consumption levels. The result will be a market poised for the next big demand or supply shock to re-calibrate prices accordingly.
Although autumn and winter rainfall was generally above average across the state, it did little to assist opening water allocations in NSW which decreased from last season. However, sustained rainfall over the winter months has led to revised water allocations, particularly in southern Murray Darling basin. This combined with improved soil moisture, larger on farm water storage levels and groundwater allocations means that the current estimate is for NSW cotton production to increase 189% to 1.2 million bales in 2020-21 10.
With global cotton stocks edging closer to near record levels at almost 100 million bales* and only a slight increase in demand due to COVID-19, prices are expected to remain suppressed for the near future. Also, of concern is the large build up of inventories in India, which could take some time to work their way through the supply chain. Although the quality of the cotton in the Indian inventories is likely not in direct competition with Australian stocks, a rebalance of global supply will be created.