Cotton markets are bracing for more price falls and rising stockpiles as already overstocked global supply chains struggle with a 12 per cent consumption slump in the wake of coronavirus hitting textile milling activity and retail sales.
Consumption expectations from the International Cotton Advisory Committee have fallen to their lowest point since 2011-12 - down 11.8pc on last season to 22.9 million tonnes for 2019-21.
Yet, despite sober forecasts from the Washington-based industry body, including average price projections for the end of financial year sliding from US71.4 cents a pound to US56.9c/pound for 2020-21, Australian growers are still remarkably upbeat about cotton's prospects.
Thanks to a turnaround in rainfall fortunes in much of the Queensland and NSW cropping belt, 2021 is already shaping up as a more fruitful cotton year than the current drought-battered season which is now yielding Australia's smallest cotton harvest in 40 years.
"For cotton, the past couple of years of drought have already been our COVID experience - things now look much healthier than six months ago," said Cotton Australia chief executive officer Adam Kay.
"Farmers have moisture in their soil profiles, improving irrigation water prospects, and they're busy picking cotton, or planting wheat and canola to generate some cash.
"The only thing they can't do is go to the pub on Friday night."
Even this year's modest Australian crop of just 550,000 to 600,000 bales would typically pay healthy forward sale prices of at least $600 a bale to those farmers lucky enough to have had water available last summer.
Anything above $500/bale is still pretty good money - better than break-even
Mr Kay also noted, despite the sector's current price and demand disruption worries, forward markets for next season were offering about $550/bale.
"That's not as good as the $600-plus we saw in recent seasons, but anything above $500/bale is still pretty good money - better than break-even," he said.
Every US1 cent depreciation in the Australian dollar added about $7/bale to the value of the crop in the current exchange rate environment - a helpful buffer for growers riding the unpredictable market.
A year ago the Aussie dollar was worth US70c, but is currently around US64, having fallen as low as US57c in March.
`Variable' two years
Based on experience after the global financial crisis, Mr Kay expected farm commodity prices to see lulls of varying lengths, but would be "bouncing back after a season or two".
Chief executive officer at processor and marketer Namoi Cotton, Michael Renehan, agreed the current "skittish" market conditions and variable-speed demand moods may be a feature of the trade for another two years.
Namoi expected the lower Australian dollar to make Australian cotton exports slightly more attractive, but it would not insulate against the recession uncertainty and consumer spending resistance ahead.
Mr Kay said fortunately Australia's high quality crop generally tended to find a home more easily than most of its export rivals, but in today's edgy selling environment "everybody needs to be sure they have a solid counterparty partner to sell on to".
Quality fibre, the local industry's sustainability credentials and increasing global unease among retailers and consumers about micro plastics and poor biodegradability of synthetic textiles should help Australian marketers weather the coronavirus storm.
While a recovery is due, the nature of that rebound is so hard to read in this novel environment
However, unlike other farm commodities, cotton and wool were not food products and therefore more vulnerable to cyclical consumer trends, including a slowdown in spending on non-essentials, said Commonwealth Bank agribusiness strategy director, Tobin Gorey.
Global stocks were mounting because textile mills were not working to their unusual capacity or were unclear about downstream demand.
Last year's US-China trade war of words had dampened Chinese buying activity, which then recovered by March, but could subside again after the volley of US presidential commentary about who was to blame for the pandemic.
Finding its level
"It's been a hot and cold market for a few months, ranging up to US70c/pound and now down to US50c, which seems to be close to finding its natural level for a while," he said.
"While a recovery is due, the nature of that rebound is so hard to read in this novel environment."
Industry analysts were leaning towards "more chance of a U-shaped upturn than a V-shaped trend line".
While the International Cotton Advisory Committee estimated China's 1.8m tonnes of imports for 2019-20 were up 52,000t in April, and India's imports grew 100,000t to 450,000t (while also exporting 200,000t less), it said supply chains were "fractured" by coronavirus containment measures across the world.
Total global trade for the financial year had been revised down to 8.29m tonnes.
"With production exceeding consumption in a contracting global economy, stock levels would be expected to increase, putting further pressure on prices," the ICAC said.
While next financial year's global production was expected to dip 4pc on this year's crop to 25m tonnes as farmers reacted to adverse market signals, total likely consumption of 23.2m tonnes would fall well short of supply.
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