Honeymoon over for cotton farmers
Wednesday, 15 February 2012 00:00
Business Reporter
COTTON farmers, who enjoyed attractive producer prices last season, should brace for a
massive drop in producer prices this season, owing to the falling price of lint on the international
market. Industry sources yesterday lamented the tumbling lint price on the world market
and the huge effect that it would have on local producer prices.
Last season, merchants were paying between US$0,85/kg and US$1,00/kg for seed cotton,
which was a substantial increase on the previous season’s US$0,30/kg.
Generally, when supply outstrips demand for lint, the price of lint will fall, which is what is
currently happening on the global market. This will be bad news for local farmers since what
buyers will be prepared to pay for their seed cotton will be commensurate with the current lint
price on the market.
The good world seed cotton prices received by growers last season are largely expected to
result in world cotton production increasing by 8 percent to about 26,9 million tonnes in the
2011/2012 season, the largest crop since the 2004/2005 season.
According to the recent Cotton Outlook, the increase in production during the 2011/12 season
will be driven primarily by China and India with production yields of around 1 300kg/h and
510kg/h respectively.
China, the world’s largest cotton producer, is expected to produce 7,2 million tonnes, an
increase of 13 percent over last year, India, the world’s second largest producer, is expecting to
produce between 5,8-6 million tonnes, an increase of around 9 percent with Pakistan increasing
production to 2,1 million tonnes a rise by 9 percent, Australia’s rise by 27 percent will push
production to 1,1 million tonnes, with production record
levels expected in India and Australia.
The global trade is expected to increase by a moderate 2 percent to 7,8 million tonnes, with the
Chinese national reserve appetite driving the imports to rise to 3,3 million tonnes, up for the
third consecutive season.
The global cotton stocks could rebound to 11,3 million tonnes by the end of 2011/12 as a result
of the projected surplus of 2,3 million tonnes. The world stocks-to-use ratio, excluding China,
are expected to rise from 46 percent to 55 percent, which could translate into a significant
decline in the average Cotlook A index for the season.
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Honeymoon over for cotton farmers
Wednesday, 15 February 2012 00:00
However, despite the falling lint price, there is still value in seed cotton production in the country
as growers continue to enjoy spot cash payments, unlike other crops such as maize where
farmers have to wait for payment after delivery of their crop.
They also benefit in cases where they sell their cotton to merchants at, for example, X price. If
the lint price falls to a price lower than the X price that the buyer paid the farmer, the risk
remains with the buyer to sell the lint at a loss. On the other hand, if the lint price goes up,
farmers are cushioned, as they will receive back payments.
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