By Yiannis Papadogiannis
Greece is going through an almost perfect season for cotton growers with high seed cotton prices that, remarkably, are not linked to the decreasing NY futures prices. Unfortunately, ginners are experiencing a worst case scenario, as correction on lint prices occurred after ginners had received the cotton, and most of them paid for the seed cotton from farmers.
Thankfully our crop came early this season and we were able to sell and ship in late September or early October, taking advantage of the low global cotton availability due to a late U.S. harvest. This fact shortened our growthΆs trading season even more, and it was already getting shorter due to lack of cash flow and no liquidity support from our banking system, making it hard for ginners to keep the cotton.
The current crop is one of the earliest crops of the last decade for Greece. Favorable weather conditions and the absence of any serious disease brought the beginning of harvest to mid-September. As a result, our cotton was ready to be shipped even by the first days of October.
International merchants took advantage of that and, since the U.S. harvest was late, they switched part of their sales to China to Greek cotton. Contrary to last season, the quality is much better (mostly middling type), so these sales were considered safe.
The current seasonΆs acreage was about 40,000 hectares smaller (down 18%) from previous one. However, due to ideal cultivation and weather conditions, yields on the fields were 22% higher than usual. Also, ginning yields were better this season and consequently, our lint production is estimated to be close to 280,000 tons (vs. 260,000 tons in 2012/13).
Greek cotton production reached a low point in the 2010/11 season due to the green worm and inclement weather conditions during harvesting period. By that time, the crop seemed to be stabilizing between 250,000-300,000 tons.
For next season, although it is too early to be certain yet, we are expecting an increase in acreage of about 20%-25%. In other words, acreage may reach 300,000 hectares, and provided the yields remain high, we can easily meet or exceed this range of production.
The early availability of our crop has become a big advantage for us, making China a constant buyer of Greek cotton. Spanish and U.S. cotton were late and since merchants wanted cotton to be delivered before the end of December in order to get the relevant quota, demand for our crop in September and October increased.
Of course, this caused the Greek basis to become unattractive to those who were not targeting China. Other Far East destinations did not follow our prices, which is why exports to Indonesia and Pakistan decreased this season.
As usual, Turkey is the number one destination for our crop. Spinners of our neighboring country consider our market “domestic” in terms of lot allocation and quick shipment. In addition, Turkey is also an easy shelter for the unreliable or ex-defaulter ginners who donΆt have many selling options. This is considered as a major factor for keeping our prices in a narrow range no matter who the seller is.
Egypt is buying again; however, there are several issues still to be resolved. Sales to Egypt were concluded either through tenders or to the private sector but payment is often late. There is also a risk due to the lack of U.S. currency in the country.
It has been a rather disappointing season for ginners, with many facing losses due to high production costs. Right from the beginning, seed cotton was purchased from growers at price of 50-52 eurocents/kg, leading to a cost of about 90 cents/lb (depending on exchange rate and specific ginning yield). About half of our crop was sold between levels of 85-90 cents/lb FOT. Only few ginners, who had sold on call and fixed during the August rally, got this seasonΆs record prices of 93-97 cents/lb FOT.
In addition to high production costs, ginners also had to face the weakness of the U.S. dollar in a very critical period for them (end of October). The good thing is that contrary to many predictions, the basis remained firm for our crop since there was always a supporting buying channel (China, Turkey, Egypt).
Following futures price correction to the 70-80 cent range, ginners strangely have kept their seed cotton prices steady, provided the quality is high. Our crop is almost half sold and prices donΆt seem to be recovering to the 90-cent range, so our hopes are on the U.S. dollar strengthening against the euro. Otherwise, losses for ginning firms seems to be inevitable.
