Global cotton prices are in for a bumpy ride in coming years, according to the Australian Bureau of Agricultural and Resource Economics and Statistics 2018 Outlook report.
Good prices and favourable growing conditions have driven an increase in cotton supplies, spurring a forecast 2 per cent drop in Cotlook A index global indicator, taking it to US81 cents per pound in 2017–18 (the August to July marketing year).
However, increasing global demand for cotton driven by a growing global economy is expected to deliver a 5pc rise to 85 cents per pound in 2018-19.
World prices are projected to decline to around US76 cents per pound in 2019–20 as supply rises to capitalise improved prices.
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The strengthening global demand should see prices recover gradually, rising by 3.9pc a year to average US85 cents per pound in 2022–23.
Over the medium term world cotton stocks (including China) are projected to fall to around 18 million tonnes in 2022–23, as world consumption grows faster than production.
ABARES said if this occurs world stocks would hit the lowest level since 2011–12
In 2017-18 Australian cotton production is expected to rise 12pc to 995,000t on the back of an average 24pc increase in yields.
That is despite a 10pc drop in the area planted.
Water availability in the 2017 planting window reduced the area planted to 500,000 hectares.
ABARES forecasts that average streamflow up to the next planting window (August to December) would be sufficient irrigation for another large crop in 2018–19, enough to produce around 830,000 tonnes.
In 2017–18 returns to Australian growers at the gin-gate are forecast to fall by 1 per cent to average $600 per bale (227 kilograms) of lint, including the value of cottonseed and net of ginning costs.
Australia’s cotton exports for 2017–18 cotton are forecast to rise by 16pc to 887,000t, valued at $2.1 billion.
Returns to growers are forecast to remain at similar levels in 2018-19 as growing global production keeping prices low.
However, by 2022-23 growers are expected to average $630 per bale, driven by rising world cotton prices.
Growing Chinese demand is projected to see exports rise to 930,000 tonnes in 2022–23 valued at $2.3b.