Cotton Marketing Issues

Market consultant Tom Galbraith from Moree-based Independent Commodity Management, has issued some valuable guidelines for dryland cotton and grain growers relating to contracts, fibre quality and market outlook issues.

Although growers have access to four separate types of contracts, only two feature the force majeure conditions (the production risk is borne by the buyer) that are attractive to dryland growers: fixed price and seasonal pool contracts.

He warned, however, that growers should be alert to the particular quality premium and discount sheet that applies to the contract selected.

“The areas on a premium and discount sheet that you should be focusing on are the micronaire discounts, length discounts for short staple, and if there were to be problems with wet weather at harvest, colour discounts.

“Certainly be aware of those discounts up front. Focus on the discounts not the premiums. I recommend that you request a P&D up front so you know what your worst case scenario is.”

Speaking on the weekly CSD Web on Wednesday video, he said varietal selection was the best tool for minimising discounts and maximising premiums, with row spacing and rotations also having an important impact in dryland situations.

“The next consideration is independent classing. We recommend and encourage dryland cotton growers to seek independent classing.”

Commenting on the market situation and outlook, he said current cotton prices are embracing levels that have not been observed for a long time.

“World carryout is forecast to decline year-on-year by 10 per cent, and although we are not seeing the full affects of this in the market place at this time, we do expect in the future to see that rally flow through to futures.

“The recent Aussie dollar strength has also tempered the rally in New York taking the edge off prices. Historically high grain prices are also having their impact, and we will see that not so much for this season, but into 08/09 as cotton attempts to buy back acres from grains that have been planted there at the moment.

“Domestic basis is certainly firm at the moment and we expect that to continue given the current crop outlook for Australia. Last year’s Aussie crop was one of the smallest in 20 years and this season’s crop is likely to be half that.

“Going into the future we do expect above average pricing opportunities closer to the usual target of $500 a bale, but I do think those opportunities will be limited so take them when and if you can get them.

“Cottonseed ex-gin values are high simply due to high grain prices and this will flow through to the price you receive net of seed,” Tim Galbraith said.

Further information: Tim Galbraith 02 67527406