Australian cotton saw turbulence in 2022

The Australian cotton industry has seen a lot of turbulence throughout 2022 and this looksg set to continue into the 2022-23 season.

Cotton prices opened 2022 on the back of a strong end to 2021 at A$740 ($493; €465) per bale. We then saw this upward trend continue through to May with prices climbing to A$980 per bale, which equaled 11-year highs for US ICE cotton prices of 150+ USc/lb.

Looking at the broader picture, a lot of this came down to the ‘usual suspects’ – a declining global production outlook at the time, positive consumer sentiment influencing retail apparel sales and a strong mill presence in the market from the supply side. Another factor was the large number of outstanding buy contracts, with mills actively purchasing at a high price to attract sellers into the market.

This, coupled with distribution uncertainties surrounding container availability and movement, led to mills over-purchasing cotton without a clear indication of when it would arrive to ensure supply was met.

Fast-track to the end of 2022 and prices have dropped dramatically from those mid-year highs. The growing uncertainty in global economies has played a significant role in the downward slide in cotton prices.

Headwinds into 2023

Cost-of-living inflation in the US and lockdowns across China saw consumer confidence fall and discretionary spending limited, and this feeds into the cotton-dominant markets of apparel and home textile products. Mills are also having to combat rising costs and working through large inventories, leading to a quiet purchasing market.

In terms of production, Australia’s 2021-22 cotton season saw a record year with over 5.5 million bales produced. Midway through 2022, the 2022-23 season was set to top this total and push toward the 6 million bale mark.

However, in the back half of the year, during Australia’s planting period, we saw the impact of flooding and adverse weather conditions significantly reducing ground preparation and planting windows in NSW and southern Queensland. This has led to forecasts being cut back to under the 5 million bale total, although there is a push to plant greater amounts of dryland cotton with its later planting window amid strong soil moisture profiles.

Looking to 2023, the continued economic headwinds associated with inflationary pressure and weakened consumer sentiment will look to see prices remain at a similar level of A$600 per bale, rising slightly into Q1.

With global consumption down 3.3 million bales month-on-month in December 2022 and ending stocks rising, there will need to be a lot of this volume going through mills for prices to climb.

Easing of China’s covid-19 lockdowns may see consumer confidence and demand increase, leading to price rises in 2023.

Edward McGeoch is an associate analyst at Rabobank