NSW Department of Primary Industries

Cotton

  • GVP $847 million est. Up 383% yoy.
  • Strong global cotton price offsetting diminishing local basis.
  • China export market share fell 31 percentage points yoy.
Coming off the back of the lowest cotton crop on record last season, this year’s cotton crop was a vast improvement with good soil moisture, increased on farm storage and increased water allocations, particularly in the South. This has helped NSW producers capitalise on a strong cotton price, which is supported by the global economic recovery driving consumer demand as well as raw product demand from spinning mills predominantly in China and South East Asia. On a slightly more somber note, Australian producers have been faced with slumping cotton exports to China with the unofficial boycott of Australian cotton taking effect, leading to declining basis for Australian cotton to parity or below international benchmarks. Declining exports to China have however been offset by growth in other markets, particularly Vietnam and Turkey.

Australian Cotton Research Institute, Narrabri

The Australian Cotton Research Institute (ACRI) is owned by the NSW Department of Primary Industries (NSWDPI). Established in 1958, ACRI is located between Narrabri and Wee Waa in the centre of New South Wales' main cotton production areas.

Research activities at the ACRI have played a key role in the development of cotton in New South Wales 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.

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Cotton in a field

Mice plague household and small business rebates now available online

Households and small businesses impacted by the mouse plague across regional NSW can now claim rebates as part of the NSW Government’s $150 million Mouse Control Program by visiting the Service NSW website.

Deputy Premier John Barilaro said eligible households can claim up to $500 and small businesses up to $1,000 to help meet the cost of mouse baits, traps and cleaning materials bought after 1 February 2021.

“These rodents haven’t just impacted farmers and crops, they have also been a scourge on homes and businesses right across the regions,” Mr Barilaro said.

“Fighting this plague has come at a financial cost and this rebate is putting money back in the pockets of hard-working families and business owners.

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Mouse in a hole

Production

NSW Cotton Production & GS Water Allocations a

  • GS Allocation South
  • GS Allocation North
  • Cotton Production (RHS)
Download data (.XLSX)
Source: DPIE (2021) , DPIE (2021) , ABARES (2021)

* 227 kg cotton bale

Improved seasonal conditions over the winter of 2020 led to good inflows and an increase in water storage levels, both in on-farm storages and regulated river system storages, while also improving the soil moisture available. The storage levels allowed for greater allocations of general security water, although some of those allocations came too late to maximise summer cropping opportunities. Cotton production bounced back from the record low production last season to an estimated and respectable 1.7 million bales, an increase of 363% year on year. 4

Most of NSW production comes from irrigated cotton production, with dryland cotton production accounting for approximately 9% of overall production over the last 10 years. 25 The contribution from southern NSW has been increasing steadily with 28% of NSW cotton production coming from this region in the five years to 2019-20, versus 14% in the five years to 2014-15. 25

The season favoured warmer growing climates, with a cooler summer delaying the maturity and harvest of the crop and resulting in some quality issues in the southern growing regions. Growers in these regions saw up to half of the cotton fall into a low micronaire range, which will result in a discount to the contracted cotton bale price for these producers. 177

Price

Cotton prices have seen a moderate amount of volatility over the past two years, with a COVID related demand slump during the early days of the COVID pandemic a key influence. This demand slump was evident through significantly delayed US cotton exports for most of 2020. Since then, global demand for cotton apparel and other products has increased due to the economic recovery underway in many parts of the world, and as such raw cotton inputs for milling are also in high demand. Dry conditions in US cotton production regions are affecting the US crop conditions and further supporting strong futures prices. 111

Basis premiums in the domestic markets were running either at parity or greater with the Cotlook A index prices and US futures contracts, however, this basis has since eroded with domestic spot prices ending the year below the Cotlook A indicator and at parity with the US futures price. 81 143 177 178 This is attributed to increasing demand from Chinese mills which are excluding Australian produced cotton imports. The Chinese government has imposed unofficial trade pressure through their domestic mills, encouraging them to source cotton from other markets, with the US being a major beneficiary. 26

Cotton Prices

  • Local Spot Price
  • Cotlook A Index
  • US Futures #2
Download data (.XLSX)
Source: RBA (2021) , INVESTING (2021) , RAINAG (2021) , COTLOOK (2021)

Trade

Australian Cotton Exports

  • World
  • China
  • China Market Share (RHS)
Download data (.XLSX)
Source: GTA (2021)
Despite a larger cotton crop in 2020-21, Australian cotton exports fell approximately 51% in value terms, year on year to $510 million, as new crop supply only began coming online around April 2021. Export volumes were restricted to lower inventories from the drought affected seasons over the past couple of years. 128

Cotton exports to China have slumped since October, when reports of a Chinese unofficial boycott of Australian cotton surfaced, although they have not halted completely, with a spike in exports in March 2021 post reports of the ban. Market share to China fell 3 percentage points to 45%, however this trend is likely to continue downward if the Chinese imposed boycott continues. Positive signs have emerged from Vietnam, Indonesia and Turkey with market share to these destinations improving by 15, 1 and 6 percentage points respectively. 128 Market access challenges will likely be felt more acutely in the two forward financial years due to larger crops, with the impacts expected to be evident through Australian cotton basis.

Macroeconomic Conditions

Global cotton markets have been influenced heavily by the COVID pandemic, where the global downturn during 2020 led to a slump in end demand for cotton products. Therefore, demand for raw cotton fell to the lowest level since 2003-04 and an increase in global ending stocks. During 2020-21, an economic recovery driven in part due to high levels of government stimulus in key markets, has spurred on increased consumer demand and as such consumption of raw cotton rising by 15% to 118 million bales l . Cotton consumption increased by approximately 11% to 21% across most major raw cotton processing countries including Brazil, US, India, Bangladesh, Pakistan, Vietnam and China. The latter accounted for an increase in consumption of 7 million bales l , or 45% of the total increase in global cotton consumption in 2020-21. 207

At the same time global cotton production is estimated to fall by 7% to 113 million bales. This decline in production is attributed to the US where production is estimated to have fallen by 27% year on year, or by 5.3 million bales, and Brazil where production is estimated to have fallen by 18% year on year, or by 2.5 million bales. 207 A range of factors led to lower US cotton production, including lower relative prices compared to substitute crops and lower planted acres, high abandonment rates, hot and dry conditions and tropical storms which reduced yields in some production regions, particularly in Texas. 213 Ultimately this has meant a 5% decline in global ending stocks and a direct positive impact on cotton market prices. 207

Global Cotton Supply and Demand l

  • China Ending Stocks
  • ROW Ending Stocks
  • Domestic Consumption
  • Production
Download data (.XLSX)
Source: USDA (2021)

Outlook

Cotton plants
Cotton production is expected to increase again in 2021-22 as good inflows of water into regulated catchments occurred over the winter months of 2021. This has resulted in higher water allocations being announced at planting time in September through to November enticing increased cotton production. 98

On a global level, cotton consumption is forecast to reach the second highest level on record at 122.6 million bales l aided by the global economic recovery, government stimulus and a return of consumer spending on apparel products. 207 Consumption is expected to again outstrip production to the tune of 3.7 million bales l . This is broadly being interpreted as a supportive factor of futures contracts which are were sitting around 97 US cents/lb as at 28 Sept – or approximately AUD $670/bale at respective exchange rates. 139 178

www.dpi.nsw.gov.au