Historically, Australian crop condition at this time of year is usually favourable, and there is no exception for this year. Farmers in central Queensland (Emerald) areas will be looking at picking their crops towards the mid to end of February. Although we have had moderate rainfall recently which would be beneficial, this has not been significant enough to improve the water level condition on the ground to increase the planting areas for next years crop. The picking widows is approaching fast. In Central Queensland around mid to end of February and other growing areas towards the beginning of March, anymore rainfall after mid February will not be welcomed by the farmers. Overall the crop condition is better than last year, according to surveys more than 70% of the crop is classified as “Good to Excellent” conditions.
It is estimated that less than 10% of the crop remains with the farmers at this stage, therefore the basis for Australian cotton doesn’t seem to be changing dramatically anytime soon. Australian cotton demand in Chinese market has been quiet in the last several weeks. There is a rumour that Chinese government will issue some quota shortly which would see some enquiries. As I have mentioned in my earlier report, Chinese mills are paying around 2500-2700pts (depending on the grades) on Future cover for Australian cotton and if this trend continues Bangladesh mills will have to pay 2600-2900pts on Future cover.
Please note we will have an adjustment on the Basis for Australian cotton in 2-3 weeks time, If the released quota encourages the Chinese mills to buy Australian cotton with the current basis level then the Basis for Bangladesh will not likely decrease this season due to smaller crop size. If the Chinese mills decides to stay away from the Australian cotton, we will see some pressure on the basis to find home in the other market.
Cotton future received support mainly due to strong demand for US bales, however the overall picture is still bearish. The Indian Government has started auctioning 4.8million bales they procured through the MSP program, however no significant numbers has moved around and Indian cotton prices are expected to be around the MSP support price.
A lof of eyes are on the new crop prospects, USDA will release their survey soon and its expected that planting areas will be lower. The Chinese planting areas are also expected to be around 15% lower outside of the Xinjiang province, where subsidy is not very attractive.
Few of the main challenges that I see are lower cotton consumption, slower than expected global recovery. However, for the time being the domestic political situation in Bangladesh appears to be the main concern for the Bangla Garment/Textile industries.