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Cotton

GVP up 245% to a record $3.2 billion est.
NSW cotton production record of 3.68 million bales est.
Australian exports up, but lagged production at $2.2 billion, down 13% on 2018-19 levels.

Excellent seasonal conditions, maximum water allocations and higher cotton prices enticed the largest cotton planting on record, with cotton production effectively at or close to maximum levels. As such cotton was a key contributor to the second consecutive record GVP result for NSW, with canola, rice and sorghum also major cropping contributors. Cotton prices ramped up over the course of the year due to increased supply chain costs, global production issues in some regions and strong demand. However domestic cash prices continued to lag and further erode compared to international benchmarks prices due to Chinese unofficial boycotts on Australian cotton imports leaving exporters reliant on lower value export markets. Global cotton prices ultimately corrected late in the year as a broader commodity sell off occurred in light of inflationary and global economic growth fears. Cotton GVP was estimated to have increased by 245% to an estimated record $3.2 billion in 2021-22.

Production

NSW Cotton Production & GS Water Allocations²⁰¹³¹^j

GS Allocation South
GS Allocation North
Cotton Production (RHS)

Download data (.XLSX)

Cotton production received a significant boost with major water storage levels continuing to increase on the year prior, which translated into higher water allocations at planting in most cotton producing districts. Both the Northern Basin and Southern Basin regulated General Security (GS) allocations were at the highest levels since the implementation of the Water Act 2007,^oestimated at more than 6,000 Gigalitres combined in allocations at the end of the water year, and a 70% increase in GS allocation entitlement year on year.³¹ The weighted average GS regulated water entitlements were estimated at 119% for the Northern Basin and 107% for the Southern Basin in 2021-22.³¹^j Groundwater extraction for 2021-22 generally dropped year on year in most groundwater zones and was well below the general compliance triggers of 105% of the extraction limit for each groundwater source.³¹ This suggests that while water allocations were very high, water demand was supplemented by above average rainfall and on farm water storage reducing reliance on the water entitlements.

The combination of favourable soil moisture at planting, in crop rainfall, on farm storage and maximum water allocations opened the opportunity for the largest NSW cotton crop planting on record at 407 thousand hectares. Average yields were estimated to increase slightly to 9.1 bales/ha resulting in a new record NSW cotton crop estimated at 3.68 million bales, 13% higher than the previous record of 2017-18.²⁰¹ The great conditions did not come without challenges with a cool start to the season impacting plant stands which required some re-sowing particularly in Southern NSW, while in crop rainfall, storms and some flooding took the shine off some yields in the Northern Basin and resulted in some crop losses.³²

The Southern Basin - encompassing the Lachlan, Murrumbidgee and Murray Valleys – recorded the largest planting to date in the district at an estimated 79 thousand hectares, however the cool and mild conditions resulted in delayed harvest and reduced yield potential for many farmers.³² The Gwydir valley, at an estimated 998 thousand bales, marginally pipped the Namoi Valley at 985 thousand bales owing to higher average yields of 11.23 bales/ha associated with the higher proportion of irrigated cotton compared to the Namoi.³² Generally, the cool and mild season benefitted the Northern and Western valleys, as well as dryland cotton which suffered less water logging than the Southern growing regions this year.

NSW Regional Cotton Production Estimates³²^k

Area 2020-21
Area 2021-22
Production 2020-21 (RHS)
Production 2021-22 (RHS)

Download data (.XLSX)

Price

Cotton Price³⁶³⁷³⁸^l

Cotlook (AUD eq)
ICE #2 (AUD eq)
Cash Price

Download data (.XLSX)

In the two years to July 2021, US futures prices have increased strongly, while Australian domestic cash prices followed but at a subdued rate. As a result basis levels have declined from around $90/bale premium (AUD equivalent) in July 2019 to price parity at the beginning of the 2021-22 financial year, and unfortunately eroded further over the second half of the financial year averaging -$57/bale compared to US futures prices.³⁷³⁸ Ultimately the erosion of Australian cotton basis is attributable to substitution of Australian cotton with competitor cotton in the Chinese market which imposed unofficial trade boycotts on Australian cotton in October 2020. While cotton, has continued to flow from Australian ports to China, albeit in drastically reduced levels, this is likely occurring opportunistically on beneficial import pricing terms, while replacement markets are generally lower value.

Offsetting the decline in basis has been a strong inflation of international futures prices which reached levels of more than $1,000/bale (AUD equivalent), and not seen since the post Global Financial Crisis (GFC) commodity boom. Underpinning this surge in prices has been a range of factors including increasing supply chain costs, shipping constraints, production concerns in major production regions including the US, and broader commodity complex price support. However cotton prices were relatively subdued when compared to other commodity prices including wheat, maize and even oil, due to cottons relative ease of substitution with other natural and synthetic fibers and cottons comparably lower direct exposure to the Ukraine-Russia conflict.³⁸ Cotton prices do tend to follow the commodity price cycle quite closely, however as noted previously in more constrained levels than seen in the post GFC price surge.

Cotton & Commodity Price Index³⁷⁵⁰

US Cotton Futures #2 Price indexed (USD)
RBA Commodity Index (USD)

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Trade and Macroeconomic Conditions

Australian cotton exports rebounded sharply from the lows of 2020-21, rising by 252% year on year to $2.2 billion, although this was still well below 2018-19 levels which peaked at $2.55 billion.³⁵ This is despite the larger crop harvested in 2022, which will take time to process through the cotton gins and hence mostly be available for export in the 2022-23 financial year. Generally, cotton exports are lagged by approximately one year, particularly after large volume seasons where ginning utilisation increases.

The most important trade issue continues to be the ongoing impacts of declining market share resulting from unofficial Chinese trade boycotts of Australian cotton, traditionally Australia’s largest cotton export market. Reports first emerged of Chinese cotton mills being instructed to avoid buying Australian cotton in October 2020, and subsequently China’s market share dropped from 63% in 2019-20, to 32% in 2020-21 and just 3% in 2021-22.³⁵ The silver lining has been the Australian cotton industries ability to diversify export markets, with Vietnam and Indonesia more than making up for the loss in exports to China. This diversification has come at some cost however, with many major markets being lower value markets relative to China.. For example, the export price to Australia’s largest 2021-22 market of Vietnam was 8% lower than the export unit price to China in 2021-22, and therefore this is the key factor underpinning declining basis levels discussed previously.³⁵

Determining which countries have been replacing Australia’s trade flows, which accounted for approximately 26% in value terms of Chinese cotton imports in 2018 and 2019 calendar years, is more difficult. Our major export competitor, the USA, lifted its market share from roughly 27% in 2018 and 2019 to 41% from 2020 through to March 2022, while Brazil has also lifted from approximately 20% to 31% over the same time period.⁴⁶ Some smaller exporters have also increased market share, most notably India, Kazakhstan, Turkey and Tajikistan although persisting trends are less obvious.⁴⁶

Higher cotton prices also incentivised higher cotton plantings particularly in the US where production was up 20% year on year and 4% globally, although this was partially offset by lower yields due to ongoing drought conditions in Western US, and higher input costs constraining productivity.²⁵⁶ Overall global production increased modestly to 116 million bales,^m however global consumption continued to outstrip supply by around 1.5 million bales,^m resulting in global ending stocks declining by 2% to 85 million bales.²⁵⁶^m

Export Market Share & Change on 5 Yr Avg³⁵

Download data (.XLSX)

Outlook

Looking forward, water allocation statements for the new water were mixed at the time of writing with GS allocations in the Northern Basin sharply higher at 135%, while the opposite applies in the Southern Basin with GS allocations at 84%.³¹ However, this is likely to change as the water year progresses, while there are also large average carryover balances in most valleys, except for the Murrumbidgee at 28%.³¹

Unfortunately the same La Nina weather system that has delivered high GS allocations has also delivered an extremely wet and cool cotton sowing period. This weather system has resulted in many fields that were earmarked for cotton being unworkable or underwater, and as such the current NSW forecast for 3 million bales has downside risk at this point in time.²⁰¹ Cotton futures prices have also had a large setback, with prices declining from their pre-June peaks. This is attributed to upside corrections to the US cotton production numbers as well as collapsing consumer confidence especially within China, where COVID lockdowns are hampering economic activity.

Strong cotton prices at the beginning of the Northern Hemisphere planting season stimulated stable cotton plantings, with global area harvested forecast to remain steady on the year prior.²⁵⁶ However, the firm price at planting also meant cotton was sown in less than favourbale seasonal conditions, particularly in the US where the portion of the crop in poor/very poor condition is up significantly year on year and Texas crop abandonment is at one of the highest rates in history.³⁸

The forecast cotton balance sheet indicates that global supply will outstrip consumption levels for the first time in 3 years, with global ending stocks increasing by 2.6 million bales.^m While this will limit upside potential for cotton price, the global cotton market is in the balance with macroeconomic headwinds offsetting potential production concerns, particularly in the US.

Stronger Primary Industries Strategy

DPI weed management program: Keeping NSW parthenium-free

NSW DPI has been leading the charge to keep our state free from the devasting parthenium weed since it was first detected here in 1982.

The 2021 grain harvest saw NSW DPI inspect more than 250 headers which came into NSW from Queensland, ensuring the equipment crossing the border had no parthenium plants or seeds. NSW DPI operates four border inspection facilities to help keep NSW parthenium-free and support farmers and contractors in fulfilling their legal duties.

Strategic Outcome

Biosecure Industries and Environment

While DPI successfully targets high-risk harvest equipment it’s also leading the ongoing management and eradication of 44 new parthenium weed infestations. Detected since April 2020, these new incursions were traced to hay, grain, vehicles and machinery brought into NSW from Queensland during the previous drought years.

In one case, a 65-hectare parthenium weed infestation near Croppa Creek is being managed after an observant agronomist found parthenium hidden in a sorghum crop. Farmer Lyndon Mulligan contacted Gwydir Shire Council and is now working as part of the team, led by DPI, which has treated thousands of parthenium weed plants on the farm.

“We have never had parthenium weed on the property and are all fortunate parthenium weed is taken seriously in NSW,” Mr Mulligan said. “As farmers managing this outbreak, we appreciate the specialist support from DPI, Local Land Services, Gwydir and Moree Plains Shire Council. Parthenium can only be successfully managed and kept out of NSW through the continued cooperation, support and hard work of government and the community.”

While machinery was inspected by the farmer and contractor before entering the property, the source of the infestation may have been equipment used in Central Queensland, an area with widespread parthenium weed infestations. Growers are urged to ensure equipment from Queensland is free from all plant material, dust, soil and accumulated grease or has been treated with a seed sterilant before entering NSW. Operators of all machinery, not just grain harvesters, have a legal duty to prevent their equipment from spreading parthenium weed into NSW, which is covered by the General Biosecurity Duty under the NSW Biosecurity Act 2015.

Weed detection dogs too, are playing an important role in sniffing out newly germinated parthenium weeds, which are difficult to find in dense undergrowth. NSW DPI, LLS and local government staff worked with dogs to search for parthenium weed at infestation sites near Parkes, Croppa Creek, Broughton Vale, Missabotti, the Upper Hunter and Palmvale. Following treatment and removal of parthenium plants, biosecurity staff returned with Connor and Dash, specially trained dogs which found very small seedlings biosecurity staff were unable to see.

The department continues to coordinate surveillance of known high-risk areas in collaboration with local councils, weed control authorities and LLS regional weed coordinators to keep NSW free of the weed. Parthenium hysterophorus spreads rapidly, is dangerous to grazing animals, can host crop viruses and reduces land values. Contact with the plant or pollen can cause serious allergic reactions in people.

If you suspect you’ve seen parthenium weed, call the NSW DPI Biosecurity Helpline, 1800 680 244, or local council for identification and assistance.

More information, including parthenium identification at different growth stages is available on the NSW DPI website.