Greek Cotton Sees Prosperity on the 2009 Horizon
February 3, 2009 Review of the 2007/08 Season
Weak results were seen for the Greek ginning industry in a season marked by extreme volatility. There were two key reasons for this poor performance. The first cause was an increase in the costs of production, mostly due to high seed cotton prices offered to cotton growers. Ginners were paying relatively high prices for the seed cotton, as they wanted to encourage cotton cultivation in Greece and raise their volumes, foreseeing better lint cotton prices in the future. The second reason for the weak results was strong fluctuations and volatility in cotton futures, as well as in the Euro/USD exchange rate. Very few ginners had the opportunity to take advantage of the strong rally during March 2008, while the USD rate (at almost 1.60) was making attractive prices (above 73 c/lb) not so profitable in Euros.
The main characteristic of last season was the drop of direct business to Turkish mills and the problems we have been facing with the port’s strikes. Following the crisis in the textile sector globally and the strong volatility of the market, Turkish mills were unable to pay the premium that they paid in the past for Greek cotton. As a result, international merchants gained some share in the market towards some traditional small merchant channels.
Moreover, in Egypt we had an increase of demand compared to the 2006/07 season, while there are several estimates reporting that in the coming season Egyptian imports will further increase.
The whole problem with the port situation was initiated from the Greek government’s intention to privatize both the Piraeus and Thessaloniki ports. Dock workers protested the government privatizations by refusing to work overtime for almost the whole year.
Recently the status for both important ports has improved. In regards to Piraeus Port, the group of Chinese companies Cosco Pacific Ltd has already agreed to buy two out of the three terminals of the port and handle Piraeus cargo management facilities for up to 35 years. In mid-October, Cosco and the authorities of our biggest port (OLP) finalized and signed the agreement.
The Thessaloniki Port is experiencing a similar change. The joint venture of Hutchison Port Holdings, HPI Sarl and Alapis Holdings was the winner of a tender to run container operations at our second biggest port. It is estimated that all negotiations with the Thessaloniki port authorities will be concluded during November of this year and the relevant agreement will be signed.
| GREECE — EXPORT BY DESTINATION | ||
| Figures In Tons | ||
| Jan-Dec 2007 | Jan-June 2008 | |
| Turkey | 85,998 | 43,067 |
| Egypt | 27,402 | 23,442 |
| Italy | 25,565 | 12,922 |
| Pakistan | 7,911 | 5,581 |
| Korea | 5,085 | 1,747 |
| China | 747 | 986 |
| Indonesia | 1,523 | 4,556 |
| Japan | 1,254 | 667 |
| Tunisa | 1,580 | 1,009 |
| Germany | 4,955 | 3,311 |
| France | 819 | 665 |
| Bulgaria | 6,180 | 2,462 |
| Romania | 1,563 | 915 |
| Austria | 2,406 | 1,145 |
| Various | 2,406 | 1,145 |
| TOTAL | 188,450 | 110,205 |
| *NSSG (National Statistical Service of Greece)/temporary data | ||
Looking on to 2008/09
Production & Qualities.
The main characteristic of the new season is the drop in cotton acreage. As in other cotton producing countries, growers preferred to plant wheat or corn due to lower costs of production and higher profit margins in the 2007/08 season. Therefore, the cotton acreage in Greece was reduced by about 25%, at 250,000 hectares. Unfortunately, there is not an official source in Greece that publishes these figures and we have to make these calculations based on trustworthy sources in our market.
Despite the drop in acreage, we don’t expect lint cotton production to decrease at the same rate since most growers tried to plant their fields with the target of getting good yields and not just receiving the subsidy. As we are still at the ginning period and mills keep receiving seed cotton, we can not be sure of the size of the crop. However, by compositing several sources, we believe that this season’s lint production will be about 240,000 to 250,000 tons.
In terms of quality, the cotton in most growing areas are at a high quality percentage, even after heavy rains affected some of the cotton’s color. We estimate about 75-80% of the crop, after rain damage, ranges from HVI CG 41 up to good HVI CG 51 color. Thankfully all the other specs remain stable; staple length is over 1 3/32’ inches and mostly 1 1/8 inches, strength is over 28 GPT (and is usually around 30 GPT) and micronaire has an average of 4.0-4.6 NCL, depending on the area. The remaining 20-25% is the so-called “pre-rain” cotton.
Cost & Pricing.
For the last two months, the whole cotton sector in Greece has been focused on the global credit and financial crisis and its implications on cotton futures. Greek ginners have to deal not only with the dropping prices in cotton, but also with their cash flow strategy since banks globally have decided to limit the credit in all sectors.
In terms of cost, this season ginners seem to have better control in seed cotton purchases and are buying at more reasonable prices, though their aim is to encourage cotton cultivation in our country. Of course in most areas the prices are still open (unfixed) and the final cost will be settled in December 2008. Conversely, the cotton seed levels are not helping ginning firms at all. The seed price that in past seasons covered the gin’s operation cost will, this season, only cover a part of it.
So far prices for the lint are not considered profitable, which is why only a small percentage of the new crop has already been sold. For this time of the season, forward sales are on a carrier low level reaching about 10-15% of the quantities for exports. In addition, the “on call” sales of the crop 2007/08 or 2008/09 basis December 08 or March 09 are on the very low side following the commodities’ collapse. The good news comes from the strengthening of the USD towards the Euro, although the better rate does not offset the loss they get from cotton prices.
Caption table 1:
Some of the main Greek cotton destinations with volumes, as announced by the Greek Statistical Service.
Caption table 2 Title – Growing Areas (% of Greek acreage): Add table/graphic:
The percentage of cotton fields cultivated, separating the Greek cotton acreage into four areas.
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