By Michael Condon, Amy Phillips and Meg Bolton
Key points:
- Chinese-based cotton trader Weilin Trade Pty Ltd has gone into administration with producers set to lose up to $20 million
- Industry groups say it's a blow to Australian farmers, who have produced their smallest crop in 40 years due to drought
- Around 40 per cent of this year's crop had been promised to the company
Weilin Trade Pty Ltd has been operating in Australia since 2012, buying and exporting cotton to China.
It also owns an 8,800-hectare irrigated cotton farm near Coleambally in New South Wales.
Michael O'Reilly, chairman of the Australian Cotton Shippers Association, said the news was a blow.
"The situation isn't good," he said.
"The Weilin situation has certainly devalued Australian cotton and millions of dollars have been lost.
"Some of this is contracts from the growers that they had with Weilin and then what the grower thought they were going to be paid, or promised, they're simply not going to get."
Smallest crop in 40 years
Mr O'Reilly said Weilin were "quite aggressive" about what they wanted to buy.
"They had a large appetite for the 2020 crop that we've got here now and, to a large extent, quite aggressive about the 2021 crop," he said.
"Maybe 40 per cent of the Australian crop this year was promised to Weilin and that is the smallest crop in 40 years.
"Some of the contracts that the growers had with Weilin were large contracts.
"The bigger picture is that this has certainly devalued Australian cotton, when you've now got administrator fire sales within the supply chain of Weilin bales."
Mr O'Reilly said, as a result, there had been a 300 to 400-point drop in the value of Australian cotton over the past few weeks.
"Before all this happened, growers were getting around $650 a bale and now we're down to under $500," he said.
Growers getting burnt
Central Queensland cotton grower Greg Hutchinson is one of more than 100 Australian farmers who were banking on payment from Weilin Trade Pty Ltd.
"We'd sold a proportion of a crop to them both this year and next year at a better price than what a lot of other merchants were offering," Mr Hutchinson said.
"It's certainly a dampener to the season. We were lucky to have a really good season up here but it took the cream off the icing off the cake."
He said he first heard rumours Weilin would not be able to pay out the contracts in June, which prompted him to act quickly to redirect the cotton elsewhere.
While he was able to sell the cotton on to another merchant, like many other growers across the country, he had to do so at a reduced cost.
"Pre COVID, cotton pricing in Australia was up to $650/bale … and now the price is sub 500 so that's the difference," he said.
"Prices are now $460 or $470 for the 2020 crop so you're looking at $160 bale that growers potentially could have lost if they hadn't done anything sooner."
Mr Hutchinson said, despite the recent setback, having smaller cotton merchants in the market was vital for a competitive industry.
"It's healthy for any industry to have quite a few merchant counterparties. Only problem is in this instance with Weilin it is probably going to have a fairly strong impact on the merchant-to-merchant trading and the grower trading to those counterparties."
Ag minister says Federal Government cannot help
Federal Agricultural Minister David Littleproud said he met with the merchant industry to be briefed on the financial losses of growers who had contracted cotton to Weilin Trading.
Mr Littleproud said the long-term effects were yet to be seen.
"We estimate it will cost producers around $20 million. That's going to impact on the current price, but it will come back," he said.
"But where the price is at the moment, it is higher than what we have experienced in the past."
The Minister said, while he was concerned for growers who had already endured drought, there was little government would do.
"Those are commercial arrangements that people undertook."
The receiver, Vincent Accounting, has been contacted for comment.
