Cotton Seed Distributors - Web on Wednesday

Bill Dunavant III - President Dunavant Inc., Memphis Tennessee - Looks at world cotton supply, demand and price trends.

Bill could you give us an update on where you see things going for the next crop as far as price goes for the Australian crop?

Well, obviously the Northern Hemisphere and the projections on new crop production is for a new record in the world, over hundred and five million bales potential out there. We see prices now reflecting that around 45c for December and the unfortunate bit for the Australian farmer is they’re going to be the first producers in the world to plant cotton in October from these new price levels, so they’re going into a time that’s not very optimistic for price due to this huge production that’s come on across the world and quite frankly we’ve been looking for three months waiting for one of these crops in the world to fail and they haven’t, in fact all of the crops right now while they are still in the field in the Northern Hemisphere look quite steady and quite good.

The US crop in particular, can you make some comments on that?

Well obviously tomorrow, Thursday (12/8/04) the USDA is going to come out with their first official crop estimate. I will tell you that initially when the crop was planted in the United States we were looking at a 17.5 maybe 18.5 on the top side but we’ve had one of the best growing conditions in the history in the United States and the crop for this time has the best condition report of any US crop in history and I think it’s going to push 19 million bales for sure.

There’s been a lot of discussion at this conference about Australia’s place in the world and about quality. Can you make some comments about the direction where you see Australian cotton should be trying to head?

Obviously Australian cotton is the premium cotton in the world along with the San Joaquin Valley. Australia because of the drought I’m afraid has forced mills that normally use Australian cotton to go somewhere else in the world and try another variety. We hope if and when it rains in Australia that we’ll be able to capture those markets back but when that happens you don’t know what the spinners are thinking or if they have found a substitute at a certain price level.

I think it’s critical for the Australian producer to understand that the world is changing, that Brazil has the opportunity this year to produce in excess of five million bales and maybe in ten years ten million bales and they will become the third largest exporter in the world.

I was in Brazil two weeks ago and every farmer down there talks about wanting to be like Australia with their yields, but more specifically their quality. The fact of the matter is and the reality is the Brazilian farmer can produce cotton a lot cheaper than the Australian farmer.

I think it’s imperative to the Australian farmer to continue to lead the world in quality and the middle in three thirty second basis that we trade in Australia really now in my opinion and some of the growers may not like this, needs to move to a strict middle an inch and an eighth.

When a marketer says he buys a middle and three thirty second we’re buying it paying a price expecting that strict middle an inch and an eighth and if we don’t get it, it becomes very, very uncompetitive and very painful, so I think the Australian farmers need to get on the front foot, they don’t need to rest on their laurels of what they’ve done in the past especially with no water they need to think to the future and they need to be ready for the challenges ahead and the biggest challenge I see ahead is going to be Brazil.

We can talk about the US farm program, there clearly is going to be a cut in agricultural subsidies of some degree probably starting in 2007 but if farmers in Australia think the US subsidy program is just going to go away they’re wrong to think that. I do think we’ll see a decrease in production but agriculture in America is just as important as agriculture here in Australia. It’s a socioeconomic issue in America. We will support our farmers; we will preserve our food and fiber supply. Will it become somewhat smaller? Perhaps it will.

Could you make some comments about where the consumption of cotton is around the world and how that’s changing?

Well yesterday in my talk I talked about the consolidation in the world of production and consumption basically in the six countries.

China, the United States, Turkey, India, Pakistan, Brazil and over 76% of all the cotton produced and consumed in the world is in those six countries and it doesn’t mean that we’re not going to have an export market for Australian cotton it just means that those countries are going to produce it and consume theirs first before going to the international market.

It potentially is going to push some of the bigger exporters like the United States, which traditionally exports from October to March, it’s going to push them out a little further to compete with Brazil and Australia, so the consumption trends are clear.

China is the largest consumer in the world and will continue to be the largest consumer between 30 and 40% of all the cotton and you’ve got to realize that they’re the largest producer as well, so China, India, Pakistan those are the biggest consumers in the world.

But, having said that one of the largest importers of cotton is Indonesia. Indonesia is in Australia’s backyard but as I said earlier in the interview, Indonesia this year has not had the normal supply of Australian cotton and our company has been selling them cotton from West Africa, cotton from Central Asia forcing them or they are forced to try something different.

Further Information:  Robert Eveleigh, John Marshall,  Craig McDonald or David Kelly