A solid crop is on the cards again this season with excellent growing conditions coming into 2012-13.
The NAB July Rural Commodities Wrap issued today states the cotton crop is expected to reach in excess of 4 million bales in 2012-13. While down on the record 5 million bales last season, this still represents the second biggest crop in the last 20 years.
Khan Horne, NAB Agribusiness general manager, said rainfall over the past two years had replenished dams across cotton growing regions, setting the sector up for high yields and above-average crops.
“We have seen the resurgence of cotton since the devastating drought in the 2000s, especially 2007-08 which resulted in the smallest crop in 30 years. It’s exciting to see such an important industry far exceeding previous production levels.
“Australian cotton growers have seized every opportunity presented by the high prices last year and the excellent growing conditions,” Mr Horne said.
Global cotton production is forecast to hit a record 123 million bales this year, which will also put stocks at record levels. As a result prices have comeback off the highs seen in 2011. More recently they have stabilised, supported by the late start of monsoonal rains in India and yield concerns for the crop in the United States.
Looking ahead, the market is expected to remain extremely well supplied. Recent forecasts suggest that by the end of the 2012-13 marketing year, global warehouses are likely to be holding around eight months’ worth of supply.
“The level of Chinese imports this year will also play a key role in influencing global prices. Chinese State Reserve buying last year managed to provide a very solid underpinning to global prices, however buying is likely to be subdued this year,” said Mr Horne.
The recent run up in grains and oil seed prices bodes well for cotton prices in 2013-14. With the value of corn and soybeans being so high, it is likely that globally cotton acreage will be sacrificed for higher value corn and soybean plantings. This should provide some upside to prices in the longer term.
In other commodities, the impact of weather conditions abroad is generally positive. Domestic grain prices are up significantly since May, which will provide a sizeable income boost. NAB forecasts wheat prices to increase 18pc in 2012-13 in year average terms.
Similarly, drought conditions in the US are likely to provide some support to dairy prices over the medium term, although the recovery from recent lows is likely to be gradual.
The rally in global grains and oilseeds prices has certainly been felt on the domestic feed market. In July, the NAB Weighted Feed Grains Price increased 13.7pc while prices were up 25.4pc on May levels.
The NAB Rural Commodities Index was relatively stable in June, falling just 0.2pc on May levels in AUD terms. The Index was buoyed by price rises for beef, sugar, dairy and wheat. However, price falls for lamb, wool, cotton and barley saw the index dip slightly.