Turbulent year for cotton and wool

INTERNATIONAL markets for wool and cotton have seen much volatility through the course of 2022 – with the lingering impacts of COVID and escalated geopolitical and economic uncertainty affecting the trade – and the year ahead could be equally turbulent, agribusiness banking specialist Rabobank says in a new industry podcast.

Speaking on the podcast, Turbulent 2022 for Cotton and Wool Prices, Rabobank associate analyst Edward McGeoch said local and global extreme weather events have significantly impacted cotton production while Australian wool production is on the rise.

Year in review – Cotton
“There has been a lot of fluctuation with cotton prices through 2022, Mr McGeoch said.

“Cotton prices opened well off the back of strong performances in 2021 – kicking off the year with a local price of roughly $740 per bale. And we saw the price trend up significantly to an 11-year high, with rises of 29 per cent to achieve just under $1000 per bale.

“Unfortunately, we have seen a steady decline from those high prices, which almost halved during the year, recovering slightly in recent months to sit at approximately $600 per bale.”

Year in review - Wool
Mr McGeoch said Australian wool producers – like cotton growers – had experienced similar volatile market conditions throughout the course of the year.

“The Eastern Market Indicator (EMI) climbed significantly through the first half of 2022 to reach a high of approximately 1474 cent/kg,” he said.

“Subsequently we have seen the EMI slide back by roughly 20 per cent from those high prices seen earlier in the year.”

Mr McGeoch said within the various wool micron ranges – there have been significant drops in prices paid for the finer micron wools, with falls between six to 15 per cent since the beginning of the year.

Production outlook - Cotton
Mr McGeoch said there have been recent industry adjustments made to the 2023 production outlook – globally and locally, due to weather events.

“US production was down this year by roughly 3.5 million bales due to drought conditions. And flooding and heatwaves in Pakistan during the year saw a reduction in the nation’s cotton production of approximately 1.5 million bales.”

Looking at the Australian cotton production outlook, Mr McGeoch said, the sector is coming off a very strong 2021/22 season of around 5.75 million bales – a big increase on the previously drought-impacted years.

Australia’s production estimate for 2022/23 was around six million bales, however, the excessive rainfall and flooding in southern Queensland and across cotton-growing areas of New South Wales has put a “serious dint” in the outlook for the 2022/23 production season.

Mr McGeoch said Rabobank is now expecting to see a cotton harvest next year of under five million bales due to the impacts of the wet weather.

New markets 
New export destinations for Australian wool and cotton are opening up in 2023.

“In October 2020, China imposed a soft-ban on Australian cotton imports, and at the time Australia was sending a significant amount of cotton to that market – around 66 per cent of cotton exports,” he said.

“There was then an urgent need to look for alternate markets and now in 2022, we’ve seen Vietnam emerge as a key new market – with the largest growth in demand for Australian cotton – with that nation now importing approximately 38 per cent of Australian cotton exports.”

Australian cotton exports to India have also jumped dramatically with 13 per cent now going to that market – compared with four per cent in 2020.