Australian Cotton Exports on the Rise | Rabobank Insights
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Australian Cotton Exports on the Rise

Cotton export on the rise

World cotton consumption has caught many by surprise this year, with trade estimates across the board revised higher, ours included. Using the US Department of Agriculture (USDA) as an example, global mill use has been raised 1.6 per cent from initial estimates, to 112.6 million bales for the 2016-17 season, on the back of larger-than-expected usage from the major Asian spinning nations.

The US continues to load up to half a million bales each week onto ships bound for Vietnam, Bangladesh, China, Indonesia and India (amongst others). However, this export program is finite and recent certified stock data, down 7.5 per cent month-on-month, highlights a tighter stock situation facing the US and quite likely leaves the door wide open for Australia to step in.

Drivers shifting cotton demand:

  • Difficult seasonal conditions across some of Asia's big producers, namely India and Pakistan
  • On the back of drought conditions, India is importing more than 1.5 million bales this year
  • Pakistan is recovering from substantial climate and pest challenges
  • The release of timeworn stocks from the Chinese reserve auctions is driving demand for higher quality cotton imports, to be blended with reserve fibre

These incidents swing net trade in this region to favour the importation of cotton, which then needs to be satisfied by the global cash market. As the US export program begins to slow seasonally, and the availability of competitive, quality Australian cotton improves, these Asian ships are expected to steer south.

Australia will need to load up over four million bales of cotton for export in 2017 - the most since 2013-14 - after high planted acreage and fair yield expectations (even despite the exceptionally hot, dry summer season) leaves production far surpassing the nation's around two million bale storage capacity.

So what does this mean at the farmgate? With expectations for strong demand to continue, basis should hold strong through the upcoming domestic export program - insulating, to some extent, softening global prices. However, should we see demand falter, the need to shift the Australian crop (in the absence of adequate storage) will become a priority, and prices may also need to soften to attract demand. Taking into account the relative weakness in the Australian dollar, we see Australia holding an advantageous trading position this season, and hold a positive outlook for marketing.