THE elephant in the room for the world cotton industry is ChinaΆs mounting stockpile which is heading towards 13 million tonnes.
In her address to the natural fibres session at this weekΆs Outlook conference in Canberra, ABARES farm trade expert, Dr Caroline Gunning-Trant, focused on the size and potential market impact of the stockpile.
China is the worldΆs largest cotton producer, consumer and importer and takes 70 per cent of the Australian crop.
Dr Gunning-Trant said China was on track to hold 60pc of global cotton stocks - equivalent to 18 months supply for Chinese mills - by the end of this financial year which was now placing downward pressure on world prices and demand.
The stockpile had grown as a result of Chinese government support for struggling local cotton producers and over-quota imports which hit a record 5.3 million tonnes of raw cotton in 2011-12 but have since tapered off and were forecast at 2.3 million tonnes this financial year. That would still be well above the 10-year average to 2009-10 of 1.7 million tones.
ChinaΆs stockpiling has actually protected the world market in the past four years because supply had exceeded demand.
The future of ChinaΆs support program for domestic cotton production and its policy on exports was still unclear but ABARES said any decision to stop stockpiling or drawdown its stocks quickly would have a serious impact on the world market.
Guest speaker and Queensland cotton grower, John Cameron, “Kintyre”, Bongeen, agreed there was “a lot of cotton in China” but said AustraliaΆs high-quality cotton was gaining a bigger share of Chinese imports.
Meanwhile, ABARES has tipped a relatively bright outlook for the Australian industry after a short-term period of lower prices.
Over the medium-term, world cotton consumption was projected to grow faster than production as world economic growth strengthened.
ABARES has forecast the world indicator price for cotton (Cotlook ΅AΆ index) will decline by 15pc in 2014–15 to around US75 cents a pound.
World cotton production was estimated to decline by 2pc in 2013–14 to 25.7 million tonnes and by the same amount in 2014-15 to 25.2 million tonnes, which would be the lowest harvest in five years.
Australian cotton production was forecast at 940,000 tonnes in 2013–14, 8pc lower than the 1 million tonnes harvest of 2012–13 but still the third largest on record.
ABARES forecast Australian cotton production at 833,000 tonnes in 2014–15, 11pc lower than this season.
Returns to Australian growers was predicted to fall by 1pc to around $498 a bale.
Beyond 2014-15, world cotton prices in real terms were projected to increase gradually to the end of 2018–19 to around US81c a pound (in 2013–14 dollars).
Based on projected world prices, returns to Australian growers were predicted to average $531 a bale (in 2013–14 dollars) in 2018–19 compared with $486 in 2012–13.
