25 May 1999
Australia protected from cotton slump
WORLD cotton prices have slumped but Australian cotton producers remain protected by the vagaries of the market, reports the Financial Times.
Farmers down under are cushioned by a combination of a weak domestic currency, reasonable US cotton prices and sophisticated hedging through futures contracts.
Australian growers are locked into cotton prices set last year at relatively high prices.
It is estimated that 85% of the current 1999 cotton crop has already been sold at around A$500 (£206) a bale.
But Australias current cotton crop, which is expected to be around 3m bales, the second largest after last years 3.2m bales, has quality problems.
These mainly stem from rain on open cotton during the picking season.
Australia usually produces high grade cotton but this year there will be a larger percentage than normal of lower grade material.
The change has meant some merchants have had to buy in higher grade cottons and incur losses to fulfil sale commitments.
- Financial Times 25/05/99 page 32