Required Report - Public distribution

**Date:** 5/1/2008

**GAIN Report Number:** AS8020

AS8020

**Australia**

**Cotton and Products**

**Annual**

**2008**

**Approved by:**

![](media/image1.wmf)Kathleen Wainio, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

Production and exports of Australian cotton are forecast to increase
sharply in 2008/09 driven by sharp increases in planted area. Despite
this forecast, production for 2008/09 is expected to remain under the
ten year average for Australian cotton production.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[SECTION ONE: SITUATION AND OUTLOOK
3](#section-one-situation-and-outlook)

[General 3](#general)

[Area 3](#area)

[Production 3](#__RefHeading___Toc197405460)

[Exports 4](#exports)

[Pricing 5](#pricing)

[SECTION TWO: STATISTICAL TABLES 7](#section-two-statistical-tables)

# SECTION ONE: SITUATION AND OUTLOOK

# 

## General

Production and exports of Australian cotton are forecast to increase
sharply in 2008/09 driven by sharp increases in planted area. Despite
this forecast, post expects production for 2008/09 to remain under the
ten year average for Australian cotton production.

Excellent rainfall in key regions has greatly improved the outlook for
irrigation water supplies in the lead up to the 2008/09 cotton season.
Post has assumed average weather conditions in the lead up to planting
the 2008/09 crop in October and November.

At time of writing this report, the 2007/08 harvest has already begun in
most cotton growing regions and will likely finish ahead of schedule due
to the very small size of the crop. Post has revised its estimate for
the 2007/08 crop downward making it the smallest crop in roughly 25
years.

## Area 

The area planted to cotton is forecast to increase sharply in 2008/09 to
190,000 hectares and is expected to account for all of the increase in
production. Post has anticipated a yield slightly above the 10 year
average and so has not used yield variance to drive any increase in
production.

![](media/image2.wmf){width="5.9944444444444445in"
height="1.9388888888888889in"}

Source: ABARE data

## Production 

Production of cotton in Australia for 2008/09 is forecast to increase
sharply to 1.5 million bales. Despite the increase, the forecast remains
well under the ten year average of 2.3 million bales. Long running and
severe drought has constrained production to historically low levels
since 2002/03.

Some forecasts remain more buoyant than that of post, reaching 2.0
million bales. However, while production of this level is possible, it
would require above average rainfall to achieve.

ABARE has reported an improvement in cotton returns for 2008/09 driven
by stronger world prices as global demand remains stronger than supply.

Post has revised the projected estimate for 2007/08 cotton production
downward slightly to just over 0.5 million bales, in line with industry
estimates. Poor planted area and some crop loss due to flooding and
poorly timed rainfall saw production fall to its lowest level in 25
years according to industry sources.

![](media/image3.wmf){width="5.997222222222222in"
height="1.9854166666666666in"}

Source: ABARE data

## Exports

Exports of cotton for 2008/09 are forecast to increase to 1.3 million
bales, up from the 1.0 million bales estimated for the previous year.
Traditionally, cotton is processed and exported the year following its
harvest, however with dramatically lower production since 2002/03, this
is not always the case. Post advises that there is likely to be some lag
between increased production and increased exports.

Despite this sharp increase, post advises that this forecast remains
well below the ten year average of 2.5 million bales. Post advises that
cotton production may take several years to recover to levels similar to
those achieved prior to the drought.

![](media/image4.wmf){width="5.947916666666667in"
height="2.1145833333333335in"}

Source: ABARE data

Total exports of Australian cotton have fallen significantly since the
beginning of the drought in 2002/03. However, despite this decline,
exports to China over the past five years have increased. China has
progressed from Australia's fifth largest export market to the largest
in less than three years. Post anticipates that this market will
continue to take a greater share of Australian cotton and will likely
absorb increases in production for the foreseeable future.

![](media/image5.wmf){width="5.989583333333333in"
height="2.0416666666666665in"}

Source: World Trade Atlas

## Pricing

Post notes with interest the lack of confidence among cotton growers
regarding the improved world cotton price. Of particular concern is the
rise in the value of the Australian dollar which has been credited with
dissipating the effects of higher world commodity prices. Many
agricultural industries in Australia have failed to realize the benefits
of higher world commodity prices due to the strengthening of the
Australian dollar. Cotton is an example of this with the graph below
showing increases in the Australian dollar moving ahead of increases in
cotton prices.

![](media/image6.wmf){width="5.9375in" height="2.125in"}

Source: ABARE data

Also detracting from the improvement in global prices is the relative
increase in the price of domestic feed grains in Australia. Industry
sources are concerned that cotton may not be as competitive for land
area as it has in the past. Some cotton regions will likely experience
significant competition for resources from other crops such as sorghum.
The graph below shows the relative increase in the value of grain
sorghum compared with cotton.

![](media/image7.wmf){width="6.020833333333333in"
height="2.0416666666666665in"}

Source: ABARE data

# SECTION TWO: STATISTICAL TABLES

<table>
<colgroup>
<col style="width: 14%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 15%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p>Cotton</p></td>
</tr>
<tr class="even">
<td></td>
<td><strong>2006</strong></td>
<td><strong>Revised</strong></td>
<td></td>
<td><strong>2007</strong></td>
<td><strong>Estimate</strong></td>
<td></td>
<td><strong>2008</strong></td>
<td><strong>Forecast</strong></td>
<td></td>
<td><em>UOM</em></td>
</tr>
<tr class="odd">
<td></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td><strong>USDA<br />
Official</strong></td>
<td><strong>Post<br />
Estimate</strong></td>
<td><strong>Post<br />
Estimate<br />
New</strong></td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td><strong>08/2006</strong></td>
<td><strong>08/2006</strong></td>
<td></td>
<td><strong>08/2007</strong></td>
<td><strong>08/2007</strong></td>
<td></td>
<td><strong>08/2008</strong></td>
<td><strong>08/2008</strong></td>
<td><em>MM/YYYY</em></td>
</tr>
<tr class="odd">
<td><strong>Area Planted</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td><em>(HECTARES)</em></td>
</tr>
<tr class="even">
<td><strong>Area Harvested</strong></td>
<td>145</td>
<td>143</td>
<td>144</td>
<td>75</td>
<td>100</td>
<td>63</td>
<td>0</td>
<td>0</td>
<td>190</td>
<td><em>(HECTARES)</em></td>
</tr>
<tr class="odd">
<td><strong>Beginning Stocks</strong></td>
<td>1938</td>
<td>2060</td>
<td>1938</td>
<td>1179</td>
<td>1080</td>
<td>1179</td>
<td>604</td>
<td>800</td>
<td>729</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="even">
<td><strong>Production</strong></td>
<td>1350</td>
<td>1100</td>
<td>1350</td>
<td>600</td>
<td>700</td>
<td>525</td>
<td>0</td>
<td>0</td>
<td>1500</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="odd">
<td><strong>Imports</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="even">
<td><strong>MY Imports from U.S.</strong></td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="odd">
<td><strong>Total Supply</strong></td>
<td>3288</td>
<td>3160</td>
<td>3288</td>
<td>1779</td>
<td>1780</td>
<td>1704</td>
<td>604</td>
<td>800</td>
<td>2229</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="even">
<td><strong>Exports</strong></td>
<td>2129</td>
<td>2100</td>
<td>2129</td>
<td>1200</td>
<td>1000</td>
<td>1000</td>
<td>0</td>
<td>0</td>
<td>1300</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="odd">
<td><strong>Use</strong></td>
<td>55</td>
<td>55</td>
<td>55</td>
<td>50</td>
<td>55</td>
<td>50</td>
<td>0</td>
<td>0</td>
<td>50</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="even">
<td><strong>Loss</strong></td>
<td>-75</td>
<td>-75</td>
<td>-75</td>
<td>-75</td>
<td>-75</td>
<td>-75</td>
<td>0</td>
<td>0</td>
<td>-75</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="odd">
<td><strong>Total Dom. Cons.</strong></td>
<td>-20</td>
<td>-20</td>
<td>-20</td>
<td>-25</td>
<td>-20</td>
<td>-25</td>
<td>0</td>
<td>0</td>
<td>-25</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="even">
<td><strong>Ending Stocks</strong></td>
<td>1179</td>
<td>1080</td>
<td>1179</td>
<td>604</td>
<td>800</td>
<td>729</td>
<td>0</td>
<td>0</td>
<td>954</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="odd">
<td><strong>Total Distribution</strong></td>
<td>3288</td>
<td>3160</td>
<td>3288</td>
<td>1779</td>
<td>1780</td>
<td>1704</td>
<td>0</td>
<td>0</td>
<td>2229</td>
<td><em>1000 480 lb. Bales</em></td>
</tr>
<tr class="even">
<td><strong>Stock to Use %</strong></td>
<td>53.98</td>
<td>50.12</td>
<td>53.98</td>
<td>48.32</td>
<td>75.83</td>
<td>69.43</td>
<td>0</td>
<td>0</td>
<td>70.67</td>
<td><em>(PERCENT)</em></td>
</tr>
<tr class="odd">
<td><strong>Yield</strong></td>
<td>2027</td>
<td>1675</td>
<td>2041</td>
<td>1742</td>
<td>1524</td>
<td>1814</td>
<td>0</td>
<td>0</td>
<td>1719</td>
<td><em>(KG/HA)</em></td>
</tr>
</tbody>
</table>

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