Bloomberg News

Cotton Harvest in Australia May Jump 25% to Record on Area

November 16, 2011

(Adds analyst comment in sixth paragraph.)

Nov. 16 (Bloomberg) -- Cotton output in Australia, set to be the world’s third-biggest shipper, may surge as much as 25 percent to an all-time high after floods boosted water supplies and spurred record plantings, according to a producers’ group.

The crop may total 4.5 million bales to 5 million bales in 2011-2012 from 4 million a year earlier, said Adam Kay, chief executive officer of Cotton Australia. The planted area may gain 16 percent to a record 580,000 hectares (1.43 million acres), he said. A bale weighs 227 kilograms (500 pounds).

Increased production in Australia will add to global supplies, pressuring prices that have tumbled 55 percent from a record in March on ICE Futures U.S. in New York. That may curb expenses for manufacturers including Levi Strauss & Co., which raised prices to cover soaring cotton costs. Global stockpiles may rise 22 percent to 54.96 million 480-pound bales by July from a year ago, says the U.S. Department of Agriculture.

“There’s less dryland crop and a little bit more irrigated and because irrigated yields more, that means we’ve got a big jump in production,” Kay said in an interview in Sydney. Regions that lost crops last season because of flooding have re- planted and farmers in areas that haven’t traditionally grown cotton are sowing, he said.

March-delivery cotton slumped as much as 2.2 percent to 98.45 cents a pound in New York today and traded at 99.33 cents, after gaining the most in three months yesterday. Prices set a record $2.197 on March 7. The Australian crop is being planted, with harvesting from March to May.

Water Supply

“It’s certainly not that helpful, from a medium-term perspective, on what global stocks are likely to do for cotton prices,” said Paul Deane, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

The rains brought by the La Nina weather event last year inundated farmland and mines, raising water supplies for crops.

Water storage in the Murray-Darling Basin, where more than 90 percent of Australia’s cotton is grown, was 88 percent full as of Oct. 26, according to the basin management authority’s website. Most of New South Wales and southern parts of Queensland have a 60 percent to 80 percent chance of above- median rainfall from November to January, the Bureau of Meteorology said Oct. 25.

The basin, which produces about a third of the nation’s food supply, extends from southern Queensland to South Australia.

“That higher-than-average rainfall means that people have to potentially irrigate less and there’s also water going into the major storage dams and that then just sets up the juices for next season,” Kay said Nov. 11.

Global supplies

Cotton exports from India, the world’s second-biggest grower, may climb 14 percent this year to 8 million bales of 170 kilograms each in the crop year from Oct. 1, B.A. Patel, the joint textiles commissioner, said yesterday.

“Because of the higher prices in March, we saw Northern Hemisphere plantings expand because of the good price outlook and that’s meant more production and there’s a bit more carried over,” Kay said. “Demand is still strong.”

Margins declined in the third quarter partly because of higher cotton expenses, said Levi’s Chief Financial Officer Blake Jorgensen on Oct. 11. Lower prices “won’t show up in our product costs until the back half of fiscal 2012” because of sourcing lead times, he said on a conference call.

China’s imports may climb to 3.3 million metric tons in the year ending July 31 from 2.7 million tons a year earlier, according to the International Cotton Advisory Committee.

“We’re close to Asia, where the market is, and we’re producing counter-cyclical to the Northern Hemisphere,” Kay said. “We export 99 percent of the crop and China’s become the prominent market.”

World harvests will increase 7.5 percent to 123.89 million bales in 2011-2012, while use is little changed at 114.27 million bales, the USDA estimates. Australia is poised to be the third-biggest exporter after the U.S. and India, it said.

--Editors: James Poole, Thomas Kutty Abraham

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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