Can growers expect prices to improve sooner or later?
In its latest World Agricultural Supply and Demand Estimates, the USDA data paints a picture of supply outpacing demand:
- Global production will increase slightly, world consumption will decline slightly
- China imports will be substantially lower than in recent years as a change in government policy comes into effect
- Overall world ending stocks are forecast to be higher this year by 7 million bales at nearly 109 million bales.
In fact, the world has never had so much cotton on hand:
- 2014/15 ending stocks of 108 million bales will be twice that of 2010/11 which is 24 million bales more than the five year average world ending stock and 36 million bales more than the 10 year average ending stocks
- The USDA estimates that in the 2013/14 year, China’s ending stocks of cotton increased by 12 million bales and at the end of 2014/15 will have grown by more than 12 million bales to sit at more than 63 million bales. This is equivalent to more than two years of Chinese cotton demand. In 2014/15, the USDA estimates that the China stockpile will increase by less than 1 million bales
- China and India are again expected to grow around half the world’s cotton in 2014/15, 30 million bales each, compared with 16 million bales from the US and 10 million from Pakistan. So the big growers will continue to produce big crops this year and world ending stocks could be even higher come June 2016. In comparison Australia is forecast to grow around 2 million bales (which is less than 2% of world production).
In response to drier seasonal conditions and outlook during the planting window, a much smaller area (nearly half) has been planted to cotton this year in Australia compared with last year. Indeed, there are reports that some growers have switched to sorghum (due to better margin per megalitre, lower growing costs per hectare and the opportunity for a potential double-crop).
The Australian crop is almost exclusively irrigated with very little dryland cotton planted, and even less dryland cotton is expected to be picked if rainfall is not forthcoming over the next month. Assuming growers have sufficient water to finish irrigated crops this year, crop forecasters anticipate that the Australian crop will yield around 2 million bales from around 200,000 hectares, equating to an average yield of 10 bales per hectare.
Compared with the USDA data, the average yield per hectare of Australian cotton (for the last three years) has been at least 20% higher than the next best cotton producing country. In 2012/13 and 2013/14 that was Mexico. In 2014/15, Turkey is expected to have the next best yield after Australia, followed by China. The average yield is notably affected by the proportion of the planted area under irrigated management systems, as is typically the case for cotton from Australia, Mexico and increasingly in China.