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Mike Shields, Grower Service Manager Auscot Warren, comments on current market options

Mike we see the current cotton price at a very low point at the moment. What are the fundamentals causing this?

Yes Craig, there’s always a lot of fundamentals at this time of the year and I generally relate to it as say weather market in relation to the US crop as to whether they get their crop in, whether it rains, whether they get cold weather and such forth like that especially.

We also look at other things as the Aussie dollar, the trend there has gone up and that’s always going to put some speculation onto the market. Worldwide we look at share economics of the crops around the countryside and everything else like that, it’s all going to depend to this sort of thing.

How is the medium to long-tern outlook for the cotton price?

Craig you’ve always got to look ahead and never look backwards. I think not too far down the track we will find some good speculation coming into this market and prices will come back up around that $500 a bale we can hope.

Will the current low price reduce the amount of cotton planted in Australia? Those with water; will they be looking at alternate crops?

I think we’ve already seen that in relation to the water factor, you’ve hit the nail on the head there but there again I think we always find that our local farmers no matter where you go to, they’re always punters and they will grow it no matter what the prices are.

They’re all set up to grow cotton so I think you’re going to find that they will have to one way or another but most of them so far in relation to the water factor have put in a lot of wheat this year and possibly other crops depending and I don’t really see much of the wheat taken out that will change that factor at the moment.

Australian cotton has a good reputation for quality around the world. Do you see this continuing as far as access to markets and that sort of thing?

It’s always going to be an interesting issue with the quality of cotton. Cotton quality of an Australian type has always been one of the best in the world and well sort after by the spinning mills wherever you go to.

I think with the increased acreages and better quality cotton that’s coming out of the rest of the world our scientists will definitely have to keep a jump and a half in front of everybody else, which I know that they are. We have got excellent quality cotton and especially in relation to staple length and uniformity it is always well sort after.

Normally with high oil prices, which we’re seeing at the moment, we see a jump in the cotton price as the mills look at alternate fibers to put through. Why haven’t we really seen that this time with very high oil prices we’ve still got a low cotton price?

Craig I think we’re still finding the effects of the Iraq war and such forth like that playing on world economics and are going to hold these down. We’re also looking at other factors that you’ve got China, Brazil and the US with probably more cotton coming out of there than what we’ve been thinking about.

The latest USDA report came out that they’re going to have an 18.1 million-bale crop. Here again it’s very, very early speculation, it’s a long time before the fat lady has sung and that crop comes in. China are also predicting a 31 million-bale crop and that’s going to keep prices down that little bit at the moment.

To top that off though I think we will see China in the not too distant future come back into the market. They’re going to be looking for good length cotton and Australia is a place where they will source it. At the moment their Government has not allowed them to buy any into their reserves but I think we will see that change in the not too distant future.

What are cotton growers asking at the moment and what is your opinion as far as what they should be doing looking at this crop coming up and the current low prices as far as marketing positions?

I suppose we cover this still with the water factor and especially in the Macquarie Valley where we are here. The only water that we’re looking at, at this particular stage in time is over around the Narromine area, which is the top end of the Macquarie Valley and that is the people that are on boars.

They’ve already had the opportunity to have forward sold that crop at $550-$600 a bale. I don’t think there’s a great deal being done in that relationship, but I still don’t think that, that is going to stop these fellas from planting cotton. They will continue to do so even though we see these prices.

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