Three good reasons for optimism, cites currency weakness, the premium for Australian cotton (largely due to its quality) and global economic recovery as the three factors underpinning the local sector’s profitability in the near-term. Domestic prices are forecasted to remain strong- above $520 per bale through 2017/18.

And beyond the next 12 months, the report says, there is additional cause for optimism – largely due to the prospect of recovering Chinese import demand.

Report author, Rabobank commodity analyst Charles Clack says the near and medium- term outlook bodes well for growth and investment in Australia’s cotton industry.

“In the next 12 months, we don’t see the increase in cotton demand exceeding the anticipated hike in global cotton production,” he says.

“However, Australian cotton prices are expected to be largely buffered from any fall in international prices, as the Australian dollar provides some offset.”

The cash premium for Australian cotton is also expected to remain high (over alternative origins), he says, due to Australia’s off-cycle export season and superior fibre quality and, to a lesser extent, Australia’s freight advantage into Asia.

Mr Clack says these factors, as well as strong hand-to-mouth demand from spinning mills as they replenish stocks, should support Australian prices above AUD 520/bale in 2017/18 – shoring up profitability for many growers next year.

“China currently holds 50 million bales in reserve,” Mr Clack says, “which is equivalent to 54 per cent of global cotton stocks. However at their current destocking rate, Rabobank anticipates China could reduce their stocks by close to 10 million bales per year. Although it is too early to call, it appears that a combination of both these factors will be required to fill this gap,” he says, “putting Australia in the ‘box seat’ to fulfil Chinese demand, given its geographic proximity, reputation for quality, and export focus.”

Please find the detailed release right here:

www.rabobank.com.au/media-releases/2017/170531-australian-cotton-three-good-reasons-for-optimism/