Best Development in 2010: Optimism for 2011
February 9, 2011 The current season will not be soon forgotten by all members involved in the Greek cotton market. The season started with very promising predictions during the planting period but is ending like a nightmare.
The main reasons are the problematic crop (plagued by green worm and heavy rains that resulted in lower-than-expected production) and historically high cotton prices that have doubled ginners’ production costs. As a result, only the defaulters could take advantage of high prices. If nothing else, this season is a good opportunity for all members of our sector to prove their reliability.
During the first months of cultivation, ginners followed a selling strategy that would guarantee them efficient cash flow in September and October so they can quickly pay growers for the seed cotton. Until August, the crop looked very promising. Most experts were calculating production of about 280,000 tons of lint.
However, things started to change dramatically in mid-August as our crop was hit by the green worm. Yields were seriously damaged. We were expecting to lose about 20 percent of the estimated 280,000-ton crop. In addition, terrible weather conditions during harvesting didn’t allow bolls to open, delaying the crop even further. In the end, estimates dropped to 180,000 tons of lint.
According to the Greek Subsidy Payment Agency, the total acreage this season was 255,526 hectares and as of Nov. 29, almost 510,000 tons of seed cotton (about 168,000 tons of lint) has been delivered to ginning mills.
Contract execution difficulties and defaults
The smaller-than-expected crop immediately increased the percentage of forward sales from 35 percent to 55 percent, putting severe pressure on ginning firms. Ginners had to take big losses in order to deliver the quantities committed and, in some cases, defaulted. Their production costs were much higher than their selling prices, resulting in losses of as much as $1 million per 1,000 tons of lint (at a selling price of about $0.80/lb and production costs of $1.30/lb).
Suppliers reacted to this difficult season in one of three ways:
• They delivered their cotton as promised;
• They negotiated alternate arrangements (e.g., partial shipments, roll over); or
• They defaulted without showing any signs of serious efforts to deliver.
Out of an estimated production of 180,000 tons for next year, about 60 percent has already been sold, while domestic consumption will probably reach 20 percent. Consequently, the remaining 20 percent (unless we face new defaults) is a very small volume and can be easily absorbed by the end of December. Ginners are aware of this situation and are trying to finalize the season with the smallest losses possible.
The only positive thing right now in our market is the increase of cotton acreage for the next crop. Growers are happy with the prices they got and will return to cotton cultivation. Let’s hope that our traditional buyers will support those ginners that honored their contracts and abandon the ones who defaulted.
GET THE NEWSLETTER TODAY!
