Signs of Recovery
March 16, 2010 The Greek cotton market is recovering from the global credit and financial crisis of 2008. Last season, and especially between October and December of 2008, our sector experienced several difficulties: from business slow down to lack of trust between clients and even small obstacles in contract implementation.
| Table 1: Cotton Acreage Drop | |
| SEASON | ACREAGE (HE) |
| 06/07 | 370,000 |
| 07/08 | 340,000 |
| 08/09 | 280,000 |
| 09/10 | 250,000 |
| *Unofficial data from OPEKEPE (Ministry of Agriculture-Department for Cotton Subsidies) | |
Thankfully, as we entered 2009 and especially after March, when the New York futures market began recovering, an optimistic feeling appeared in our mark et which led to a strong demand for our crop and profitable sales on behalf of ginning firms. Consequently, in spite of the problematic beginning, last season finally gave ginners a satisfying sentiment that has provided an extra motivation for the current crop of 2009-10.
The collapsing prices in New York futures from the end of August until almost December of 2008 coincided with seed cotton deliveries. As a result, low lint prices were passed on “career low” seed cotton prices. Ginners had a more controlled cost of production due to lower seed cotton prices, while cotton growers were very much disappointed by the pri ces and decreased their cotton cultivation for the current season in 2009-10.
Acreage Stabilizes
Like most cotton producing countries, Greece faced declining cotton acreage due to high production cost and low cotton prices. Our crop has been reduced by about 50 percent from its highest levels in 1999-2002 (approximately 430,000-440,000 tons of lint). However, most cotton people believe that the current crop is at the lowest possible level for our market. Table 1 demonstrates the decreasing cotton acreage in our country during the last four seasons.
According to unofficial data from OPEKEPE (Ministry of Agriculture-Department for Cotton Subsidies), the cotton acreage this season is less than 250,000 hectares and, most probably, this figure will drop even more for the official count. Based on different sources of our market, the “professionally” cultivated acreage reached about 190,000 hectares, plus or minus 5 percent.
Against these pessimistic facts for our crop, there is some news that looks promising for the coming season. It is thought that some farmers will return to cotton cultivation in the following year, as they were not overly satisfied with alternative crops (such as wheat and corn). Cotton growers this season (2009-10) were paid reasonable prices for their crop, making cotton more competitive with other commodities. Of course, it is too early to make a completely accurate calculation for the coming cotton acreage, but an increase of 25 percent is likely.
| Table 2: Greek Cotton "Balance Sheet" as per Beginning December 2009 | |
| CROP | 09/10 Estimate(Tons) |
| Beginning Stocks | 10,000 |
| Production | 190,000 |
| Imports | 0 |
| Total supply | 200,000 |
| Consumption | 30,000 |
| Sales till Dec 09 | 70,000 |
| Balance for exports | 100,000 |
Selling Strategies
Business-wise, there are some things that have changed compared to previous seasons. Following our crop’s decline, we are experiencing a season with very few forward sales. In addition, ginners hesitate to offer big volumes of 1,000 to 2,000 tons like they did in the past. Their selling strategy is to offer/sell small volumes of 300 to 500 tons throughout the season mostly on fixed price rather than on-call. The reasons for these changes are the following:
• This is the first time that beginning stocks from crop year 2008-09 are very low. Thus, ginners will have to depend solely on current crop deliveries in a season whose production is very small.
• Ginners are very satisfied with the prices they have been paid by Turkey in the last eight months. Most of them believe in this scenario: since the Turkish crop is smaller, Turkish mills will still be active and paying a premium for Greek cotton especially after the first months of 2010.
• Regarding on-call sales, ginners are reluctant to sell unless the basis is really attractive and the payment is prompt. The disappointing prices of last season’s on-call contracts cannot be easily forgotten.
Quantity-wise, about half of our total production is still available for exports and this is a rather low percentage for this time of the year. The estimated 100,000 tons of lint balance can be easily absorbed in case Turkish mills enter our market aggressively. Table 2 demonstrates the current status of our crop in terms of volume.
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