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marketing The world cotton market ■ By Michael Edwards, Cotton Outlook SINCE our previous contribution to The Australian Cottongrower in early October, international cotton prices have remained within the trading range established for several months now. During the period, the Cotlook A Index has touched a low point of 79.40 US cents per lb, and a peak of 85.30. While it is no doubt still true to say that trade sentiment is inclined to the bear side, the market’s resistance to downside pressures, in particular during the Northern Hemisphere harvest period, when financial pressures are wont to undermine the market, has given some pause for thought. Moreover, the period under review has seen some fairly active and broad-based mill purchasing, though few spinners are willing to cover their requirements beyond the nearby shipment period. For most, the prices currently obtainable for medium count yarns appear remunerative with raw cotton replacement costs in the region of 80.00 cents per lb, CFR Far East. A glance at global supply and demand fundamentals is sufficient, but to warn against any undue optimism with regard to the future direction of prices. At the time of writing, Cotton Outlook’s statistics indicate that production will exceed consumption during 2012–13 by 3,682,000 tonnes – to add to a surplus of more than 5,500,000 tonnes accumulated during the previous season. Phil Sloan Amy Billsborough PO Box 1203 GOONDIWINDI Qld 4390 Ph: (07) 4671 0222 Fax: (07) 4671 3833 AGENTS: Pete Johnson Left Field Solutions Mob: 0409 893 139 Paul Kelly Moree Real Estate MOREE Ph: (02) 6751 1100 Cargill’s Cotton Division – Buying cotton bales direct from the grower Roger McCumstie BRISBANE Ph: (07) 3367 2629 David Dugan Lucy Watson TRANGIE Ph: (02) 6888 7122 cotton_aust@cargill.com www.cargill.com.au FIGuRE 1: Cotlook A Index since January 2012 But as we have noted before, a very substantial proportion of the excess supply resides in China, and is effectively in the control of the Chinese government. By the end of November, procurement by the state reserve – at a price far above the international market – was approaching three and a half million tonnes. Taking into account import purchases and procurements last season (some of which were released back onto the local market Specialists in the Sale and Valuation of Rural Properties • Rural Properties • Cargill Cotton Agents • Town Sales • Registered Valuers • Property Management • Auctions • Clearing Sales MOREE REAL ESTATE www.moreerealestate.com.au Phone: 02 7651 1100 Fax: 02 6751 1766 After Hours: Paul Kelly 0428 281 428 Cliff Brown 02 6752 3970 Allan Gobbert 0428 523 375 34 — The Australian Cottongrower December 2012–January 2013
marketing FIGuRE 2: China state reserve procurement during September), it is estimated that government-held stocks have increased to more than 7,500,000 tonnes, equivalent to the lion’s share of the global surplus referred to above. Self-evidently, the fate of China’s accumulated reserves and the prospects for the international market are intimately linked. Yet, despite months of conjecture, the intentions of policy-makers in Beijing remain impossible to discern – always assuming that the latter have themselves formulated a plan of action. Whatever the case may be, most outside observers believe that the current arrangements will not prove sustainable for much longer. Not only is the massive stockpiling of cotton absorbing a huge amount of public money and placing a strain on warehousing capacity, the resultant market distortion has also placed the country’s spinning industry at a huge competitive disadvantage vis-à-vis mills with access to cotton at international prices. Chinese raw cotton consumption has taken a serious knock in consequence. Cotton yarn imports have risen sharply, surpassing one million tonnes during the first 10 months of this year, almost double the volume imported during the corresponding period of 2011. China’s appetite for foreign-spun cotton yarn has also been one factor that has contributed to the restoration of spinners’ profitability in several parts of the world, and in turn helped to support international raw cotton prices at their recent level. While China’s influence over the coming months remains a great unknown, that of India also deserves examination. As we reported in our previous contribution to the The Australian Cottongrower, confidence in the production outlook in India has been restored, following a lengthy period during which the crop appeared at risk from a delay in the arrival of monsoon rains, most notably in the important producing state of Gujarat. This has raised expectations that downward pressure on the international market might come in the guise of more aggressive Indian offers, should harvest-time, financial pressures begin to weigh on local prices. Thus far, the anticipated downturn has failed to materialise, though the harvest remains at a relatively early stage. As in China, the scale of government intervention may prove significant. In June of this year, the government announced an appreciable rise in Minimum Support Prices for seed cotton, as well as those for several other commodities. Private sector participants are not bound by the MSP, which instead represents the level at which the Cotton Corporation of India December 2012–January 2013 The Australian Cottongrower — 35
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