* Dreyfus taking stake, setting up marketing JV
* Namoi is one of Australia's biggest grower co-ops
* Australian cotton considered high quality
NEW YORK, Jan 15 (Reuters) - Louis Dreyfus Commodities, one of the world's biggest agricultural traders, plans to buy a stake of about 13 percent in Namoi Cotton Co-operative Ltd in a bid to increase its footprint in the lucrative Australian market.
The move, coming after a year-long effort to secure the co-op's future, is a further sign that the unprecedented volatility in cotton prices over the past four years, which caused widespread contract defaults, continues to roil the market.
As part of an agreement announced late Tuesday, Namoi, one of Australia's biggest cotton grower co-operatives, will sell 14.3 million shares to Louis Dreyfus worth AU$3.65 million. That is equivalent to 13 percent of the company's share capital, according to Thomson Reuters data.
At the same time, the two companies will set up a joint venture to market the co-op's output, which accounts for about quarter of Australia's annual crop.
Namoi, which was set up in 1962 by a small group of farmers in the Lower Namoi Valley, will hold a 51-percent stake in the venture, with Dreyfus, the world's biggest cotton merchant, owning the remaining 49 percent.
Namoi will continue to own and operate its ginning and cotton seed business, but the venture will take over its marketing and commodities packing assets, for which it will receive AU$30.38 million, Namoi said in a statement.
After a year-long effort to raise cash and pay off debt to secure the co-op's future, the deal hands the co-op Dreyfus' financial firepower, global marketing expertise and risk management.
"The joint venture will create a strong marketing business whilst retaining important grower member co-operative involvement. The capital raised will strengthen Namoi Cotton's balance sheet," said Namoi Chief Executive Officer Jeremy Callachor in a statement on Tuesday.
In its last financial year to end-February 2012, the co-op lost almost AU$70 million ($74 million) as textile mills reneged on sales contracts and borrowing costs increased due to wild swings in prices.
In turn, Dreyfus, whose flagship cotton business Allenberg Cotton is based in the United States, will get a big chunk of output from one of the world's top 10 producers.
Ranked No. 7 in global production, Australia is expected to produce 4 million 480-lb bales in the 2012/13 season, according to U.S. government estimates. Its cotton is highly sought after due to its proximity to China, the world's biggest textile industry, and the high quality of its fiber.
Louis Dreyfus Commodities, which already operates a cotton origination, warehousing and logistics business in the country, will buy a portion of the joint venture's cotton each season, the statement said.
The co-operative ginned a record 1.06 million bales in the 2011 crop, more than double the previous year, its last full-year financial report said.
The Namoi board is unanimously recommending that members approve the deal, the company said. A vote is expected by the end of February.
