REX - Regional Express

agribusiness Cotton and China both start with 'C' … but the linkage is more than merely alphabetic. China holds 55 per cent of global cotton stocks and, over the past three years, has driven that amount up by 77 per cent, largely through a massive acquisition campaign and minimum pricing for its local growers. With its warehouses filled, however, it was feared China would flatline at the end of March. Then came the good news that China would again be buying for its reserves in 2013. However, it will use five per cent less cotton in 2012/13 and import two per cent less than the preceding year. Its projected consumption of 36 million bales looks set to be the lowest in a decade. Global 2012/13 cotton production and global harvest areas will slump four per cent from a year earlier. At the same time, stocks in the rest of the world are forecast to decline by more than 10 per cent. The US Department of Agriculture calculated the March planting intention at 4.05 million hectares, 2.29 million bales less than the previous year. Other countries, notably Bangladesh, India, Indonesia, Pakistan, Turkey and Vietnam, are expected to move into China's space. Price and production World production continues to outpace consumption. The 2012/13 stocks-to-use rose nine percentage points above that of the previous year. According to the International Cotton Advisory Committee (ICAC), the index is the highest it has been since World War II. Queensland Cotton's executive general manager for marketing, Phil Ryan, advocates caution. "With 80 million bales of cotton stock worldwide – twice what we really need – and almost half of that tied up in Chinese Government reserves," he says, "the price direction of the cotton market remains uncertain." Overstuffed with cotton, the world is seeing a drop in prices. According to ICAC, international cotton prices were 20 per cent lower in the first four months of 2012/13 than they were over the same period last year. Additionally, there is competition for land by farmers growing more lucrative crops, such as grain and soybeans. Concurrent with the global dip in cotton prices in 2012/13 was a lift of at least 15 per cent in the prices of maize, wheat and soybeans. And generally, cotton is more expensive to produce than those competing crops, typically needing more fertiliser, pesticides and fuel. In January, US-listed agriculture, energy and finance giant Louis Dreyfus bought a 13 per cent stake in Namoi Cotton. In April, US-based Omnicotton opened its first Australian office. Cubbie Station, a 96,000-hectare cotton enterprise, became the nation's most valuable farm when it was sold for an estimated $240 million on January 25, 2013. Three years earlier, it had gone into voluntary administration, owing about $320 million. Profitability had taken a hit when the rains failed to come for a decade. However, when the drought broke the following year, it earned $80 million before interest and taxes. Picking season in late March saw good yields of about 10.5 bales per hectare. Most cotton grown in Queensland and New South Wales typically ends up as woven or knitted clothing made in China "There is competition for land by farmers growing more lucrative crops, such as grain and soybeans." 33

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