Cottoning on to forward contracts

Cotton growers seize upon short term spike in prices


UPDATED: Cotton prices are likely to remain above $520 a bale according to a market analyst.


AUSTRALIAN cotton producers, especially those on irrigation, have seized upon a market spike to lock in attractive prices on offer earlier in the month.

A short term spike in global cotton prices, both for prompt delivery and on nearby futures contracts, was sparked by production uncertainty and eager buyers.

It led briefly to prices of up to $580 a bale for Australian old crop cotton and also presented opportunities for growers starting to market the 2017-18 crop, with forward prices topping $550 a bale.

And although prices have come off highs, analysts are predicting values to stay in excess of $500 a bale, traditionally regarded as a strong price.

Rabobank commodity analyst Charles Clack says cotton prices in excess of $520 a bale are likely for the 2017-18 crop.

Rabobank commodity analyst Charles Clack says cotton prices in excess of $520 a bale are likely for the 2017-18 crop.

Charles Clack, Rabobank commodity analyst, said he forecast prices remaining above $520 a bale through 2017-18.

He based his assessment on three key factors, a declining Australian dollar, a premium for Australian cotton, regarded as high quality on the world market and a recovery in the broader world economy boosting demand.

Wayne Newton, AgForce grains section president, said farmers had been alert to the window of opportunity presented by the market climb.

“The prices have come back since but people have closed their exposure to the old crop and where they can they have locked in some of the new crop at these high values,” Mr Newton said.

He said irrigated cotton producers in particular had been tempted to market at least part of expected new crop production.

“They have that relative certainty about production so they’ve definitely seen an opportunity at the price levels that were on offer.”

Commonwealth Bank commodity analyst Tobin Gorey said while the May price spike had run its course prices were still strong.

“The July futures contract got as high as US87 cents a pound, it has come back to around US77c/p,” Mr Gorey said.

He said on a historical basis, this represented a solid, but not outstanding price.

“It is good enough to attract more plantings, but there could be downside pressure if there are no weather issues arising in key cotton producing areas globally, especially considering investors are net long cotton.”

Mr Clack agreed, saying increased planting would mean world prices were likely to drop, however he said projected falls in the Aussie dollar would insulate Australian growers from major declines in real prices.

Mr Newton said cotton was by far the preferred option at this stage in terms of 2017-18 summer cropping rotations in northern Australia.

“The old rough rule of thumb was a bale of cotton equating to a tonne of sorghum, that has been thrown out the window, as we see these $500 a bale plus prices for cotton and sorghum is down below $250/t.”

Sorghum has been the victim of the malaise afflicting the feed grain complex as a whole, driven by exceptional corn production in North America over the past two years, along with a large coarse grain stockpile in China.

“Going on the prices at this stage you would definitely say people will go with cotton where they can.

“Prices move around, but those on irrigation, who are happy to do forward marketing due to relatively low production risks, will be pricing cotton at these higher levels,” he said.

Mr Clack said the optimism in the cotton sector extended beyond 2017-18.

“We are confident Chinese import demand will become stronger,” he said.


From the front page

Sponsored by