Directors of the failed Chinese-owned cotton merchant Weilin Trade are selling off land and water assets in southern NSW to pay $5.5 million owed to growers and other creditors.
But the money represents just 20 cents in every dollar of Weilin's approximate $22 million in outstanding debts to unsecured creditors, and it may not be paid until after Christmas.
Although not legally responsible for the Weilin debt, an affiliated company WL Agriculture International has already sold water entitlements to repay the merchant's $35m loan from National Australia Bank.
WL Agriculture, whose directors and owners also headed up Weilin Trade, officially owned land and water rights associated with Weilin Trade's base in southern NSW at Coleambally.
In a year where Australia's cotton harvest shrank to just 600,000 bales, Weilin left a trail of unsecured creditors including farmers, other traders and service companies, after promising to buy about 40 per cent of the crop having outbid other merchants by up to $30 a bale at times.
About 200 growers had forward contracts covering this year's crop and a further 145 extended to the 2021 season.
However, the trading company went into receivership mid-year, caught by a $100/bale market slump in February-March which left it unable to pay contracts typically worth more than $560/bale and some worth well above $600.
One prominent northern NSW grower had 1000 bales contracted for $610/bale.
When unpaid contracts were eventually washed out in July the same cotton was valued on the spot market at just $495/bale.
Growers subsequently sought compensation from Weilin's administrators for the difference between their original contract price and what their crop was eventually worth, but did not have many options to bargain with.
Weilin factor lingers
While they were able to retrieve their unsold cotton for resale, traders said the extra volume returning to the market weighed on Australian prices in the past few months, even though US futures have been reviving.
The Weilin bales potentially had a $20 to 30/bale basis impact on local prices as international buyers held back, knowing this cotton had to find a home.
"I gather there is still unsold cotton trickling onto the market for 2020 and certainly next year," said the head of a committee representing unsecured creditors in administration talks, David Goodfellow.
Mr Goodfellow, also well known as an agribusiness investment fund boss, said it was unfortunate a rising Australian dollar had added pressure to local prices in recent months.
"The good news is growers got their unsold cotton back. At least they didn't lose their entire income," he said.
"The remaining funds unsecured creditors get won't be anywhere near what they've actually lost, but it's a lot better than if the trading company had gone into liquidation.
"There were basically no assets left to share around."
The subsequent payment offer to unsecured creditors via WL Agriculture had been voluntary, with the alternative probably being nothing.
Waiting it out
However, he said growers remained on tenterhooks until Weilin's directors raised the $5.5m they had agreed to pay after selling other assets.
Under a deed of company arrangement between creditors and Weilin's administrators, accountancy firm Vincents, the company has until late December to find the cash.
Administrator Steven Straatz at Vincents said distributing payments could take a further two months, but the process may start earlier if money was available sooner.
Meanwhile, after this year's big stumble, global cotton prices have regained about 70pc of the strength they enjoyed in January when the spot market was at US71 cents a pound.
The market sank to about US50c in March, recovering to between US60c and US64c since July, or near $500 a bale in Australia.
Toowoomba-based commodities market intelligence and broking specialist, Pete Johnson, Left Field Solutions, said much of the global price recovery was fuelled by Chinese buying in the US to fulfill commitments to this year's US-China Phase One trade deal.
"The futures market is probably rising because of political demand from China more than commercial signals," he said.
"It doesn't look like there's a lot of consumptive demand around the world, but China's also probably happy enough building its reserves for a while."
In Australia, where prices had been over inflated by last summer's small crop and Weilin's bidding spikes, growers were happy to see them holding above the important $500/bale price.
However, many were still frustrated by irrigation water availability and the high dollar, while rice, corn and sorghum were vying for summer crop space, too.
Namoi Cotton managing director Michael Renehan said extreme dry weather in parts of the US, including Texas, had further confused market expectations and planting intentions back in Australia.
"In the current COVID environment the dynamics are difficult enough to predict, but with significantly reduced stocks in Australia we're not in such a bad position to take advantage of any upturn in demand."
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