Australia Ready To Rebound: From Drought To Full Bloom
January 28, 2009 In the past two years, an epic drought has severely stymied Australia’s cotton production, impacting all segments of the industry from growers and ginners to merchants and exporters. In 2007, only 60,000 hectares were planted to cotton, down more than 80% from 2005/06.
As harvest began in March, the Australian industry believes yields will probably average 8.5-10 bales per hectare and estimates the 2008 harvest at 540,000-600,000 bales. Pete Johnson, president of the Australian Cotton Shippers Association and General Manager at Weil Bros.- Cotton (Aust.), said yield averages will be more concrete as the harvest progresses, but he believes 10 bales per hectare is a possible goal.
“We’ve had a cool summer, and yields aren’t looking as good as the last couple of years, but we’ll still average about 4 bales an acre, or 10 bales to the hectare. If things go well, we could get 600,000 bales, but it could be as low as 400,000 bales. Over the last couple of years, we have been consistently surprised to the upside with the way our crops have been yielding with some of these new varieties,” Johnson said.
Initial quality of seed cotton in the modules looks excellent, according to Cambel Ball at Queensland Cotton, who said that about “75% of the crop had been committed to merchants already, especially with the recent price spike.”
Looking to Next Year
While this past season may be one the Australian cotton industry wants to forget, optimism abounds for next year. Beginning last November, rains and flooding in some areas began to refill the country’s reservoirs and dams, creating the possibility for irrigation for the next crop. Australia’s water supply is critical to its production agriculture, and a completely full reservoir can supply enough water for three years in some parts of the country.
“The rains have added water to the major irrigation storages which will help for next season. We had good rains in November and December, it dried up a bit in some places in January, and then we’ve had good rains since then – including flooding rain in Queensland. That may not seem like a good thing in the short term for some people, but it puts water in the dams. For example, Fairburn Dam in Emerald in Central Queensland is full, which will give that area 100% water for three years,” Johnson said.
Currently, Australia’s main valley reservoirs are anywhere from 25% to 50% full and in a few places 100% full. Johnson said many areas already have enough water for a good cotton crop next year, especially since weather forecasts indicate more rains before planting in September. If the current weather trends continue, Australia’s 2008/09 crop should triple this year’s production.
“Basically what we are thinking at the moment, based on current water availability and depending on the grain/cotton price relationship, we think there will be something between 160,000 and 200,000 hectares going to cotton this year, and we think the total crop will be between 1.5-2 million bales,” Johnson said.
That estimate will depend on several factors, and this year’s wheat plantings are on the top of the list. With high grain prices and water currently available, many Australian growers may plant wheat this year to help immediately assuage poor profits from the last few years. But if growers hold out for a cotton crop, they might get better returns.
“Depending on how the price relativities are, many of these guys are about to start planting wheat because the prices in Australia are currently close to $400 (AUD) a ton, which is a very attractive wheat price. And because they have been in a drought, they need some cash flow, so they will plant a cash crop. The question is how much of the irrigated acreage will go with wheat,” Johnson said.
According to his figures, Johnson said cotton at $500 (AUD) per bale will provide better gross margins than wheat at $400 (AUD) per ton. However, some farmers may be looking for a short-term shot in the arm, and take profits from wheat. Ball said many of the growers in his area are “still undecided on their farming programs for the winter and summer crops this year, but cotton price action (in March) has altered farmers’ decisions and encouraged them to rethink fallowing more areas for cotton.”
Double-cropping wheat and cotton is not a traditional practice in Australia, but the drought and price surges may encourage farmers to revisit it, Johnson said. It would take near perfect weather and timing, and many farmers may plant wheat to lock in profits. But double cropping out of barley into cotton may be a more viable option.
“You can almost double-crop, but not quite – maybe you could if everything was perfect. You are harvesting in November for your winter crop, and some growers will plant barley, which you can harvest earlier, and this year, a lot of growers are talking about double-cropping, but whether they are able to or not is a different question. Some growers are considering wheat into cotton, but the timing of harvest will be critical,” Johnson said.
Larger Crops Bring Logistic Issues
While the Australian cotton industry is in desperate need of larger crop, that wish will undoubtedly bring some challenges to the industry’s infrastructure, which has been pared down in the past two years. Hundreds of employees from farm laborers to cotton traders have left the industry to find employment in other sectors, such as the coal and mining industries, where their skills are transferable and compensation is high. With agriculture planning a resurgence, the industry must make a concerted effort to attract employees.
“One of the big issues that we’ve had – and it’s not just cotton related, but agriculture in general – we’ve had this terrible 100-year drought and have seen hundreds of people leave agriculture. At the same time that agriculture has been in a slump, drought and price-wise, we’ve seen a massive boom in Australian mining, because of the demand from China for coal and oil. A lot of the skills in agriculture are transferable to mining, and a lot of the guys have switched over for some big money, and it is going to be hard to get them back,” Johnson said.
“Even at the business end of the spectrum, with such low volumes, there have been a lot of people to leave the industry and go into the banking and finance sectors, so we are trying to rebuild, and we’ve got to attract people back in. We are actively talking to universities and agricultural colleges, letting them know we are going to need people. We are not trying to reinvent the wheel here, but we do want to encourage people back into it and are telling them that things are looking up.”
In addition to labor, Australia has another challenge to face next year – fewer storage facilities and less transportation for the crop. Traditional logistic avenues have been usurped by other wares, as the stronger AUD in relation to the U.S. dollar has caused a surge in imports. A 2 million bale harvest could find space to be scarce, or at the very least, it could be much more expensive.
“Our warehouses have all looked for alternative products to fill their trucks and their warehouses, and with the high AUD certainly relative to the U.S. dollar at the moment, imports here are surging. That is a real issue for us. We’ve got to make sure that we can move and store a 2 million bale crop, so what we are doing is communicating with our service providers to let them know what’s coming. This is something we are anticipating,” Johnson said.
To the Future
Despite the obstacles it must overcome, it is clear that Australian cotton will continue to be a strong player on the international cotton export market, especially for it’s highly-valued quality cotton. Traditionally sought by spinners in Indonesia, Thailand, Korea and Japan, Australian cotton is known for its superior cotton genetics – and this should continue in the future as new experimental varieties and better traits come down the R&D pipeline.
As Australia tries to recapture global market share lost during the past years with smaller crops, cotton researchers continue to develop Australian varieties that produce high yields and a premium value to spinners.
“We have excellent researchers and seed breeders down here, and they are constantly trying to raise the bar,” Johnson said. “We are trying to take another step forward with some of our quality. And certainly there are excellent traits in some of the new experimental lines that are coming on, and we feel that, because of the market share that we have potentially lost, we need to raise that bar on quality even more.”
Captions (2 photos):
Cambel Ball,
Queensland Cotton Company
Pete Johnson,
President, Australian Cotton Shippers Association and General Manager of Weil Bros. – Cotton (Aust.)
Sidebar (need graphic):
Australian Cotton Production (In 1,000 480-pound bales)
Source: Foreign Agricultural Service, USDA *Australian industry estimate
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