Namoi Cotton backs ideas of jump in Australian cotton output

Namoi Cotton backs ideas of jump in Australian cotton output

Namoi Cotton underlined the prospect of a surge in Australia’s cotton output – although it will come too late to save the seed-to-marketing group, in which Louis Dreyfus is a top shareholder, from another annual loss

Namoi Cotton, based in New South Wales, said that Australia looked set to a produce 4.0m bales of cotton in 2016-17 – a 48 % rise year on year, albeit a forecast in line with estimates from commentators such as Abares and the US Department of Agriculture.

The improved prospects for the crop, which Namoi said was now 50 % planted, reflected rains in eastern Australia which, while raising concerns over the region’s wheat quality and chickpea harvests, have boosted prospects for cotton.

“The period of wet weather that has existed generally since June has overfilled on farm and public storages in the southern valleys of the industry, with central and northern areas now also having full on-farm storages and increased allocations from public storages,” the group said.

“This water position combined with excellent soil moisture profiles and the subdued price of alternative crops is supportive of increased [2016-17] crop production.”

Australia is forecast by the US Department of Agriculture to export 3.9m bales in 2016-17 – a result which would promote it to equal second with India in the shippers table, behind only the US.

Volume surge – next year

The prospect of an increased harvest – of which Australian growers have sold forward an estimated 40 %, compared with 50 % a year ago of the smaller 2015-16 crop – has raised the prospect of a large increase in Namoi’s cotton volumes.

Including gins held in joint ventures, “our current forecast ginning volumes are between 1.0 million to 1.1 million bales, representing an increase of between 45 % – 60 %” year on year.

However, the impact will be reflected in the group’s next financial year, starting in March 2017, with the group forecasting that it will in the current year report a loss of Aus$1m-3m.

The forecast of a second successive annual loss comes despite a stronger start to the current financial year, with the group reporting an 8.2% surge to AUD 7.42 million for earnings for the March-to-August half.

“As the majority of revenues are recorded in the first half of the year, with ginning maintenance expenses incurred in the second half of the year, Namoi Cotton expects its financial results for the full year to be a net loss after tax,” the group said.

Margins under pressure

Jeremy Callachor, the Namoi CEO, added that “trading conditions for Australian cotton remain challenging with margins under competitive pressure”.

The group last week detailed plans to improve its long-term performance, through measures such as expanding further its ginning network, to exploit economies of scale, boosting seed storage, and expanding into other – food-based – agricultural commodities to harness Asian demand for Australian crops.

However, the plans require AUD 35million – 35m in investment – cash which Namoi Cotton’s current structure, comprising two classes of shares, one of which is listed in Sydney, makes difficult to raise, the group says.

It has proposed a single class of shares, listed in Sydney, to “delivery a repositioning of Namoi Cotton, with greater flexibility and a more efficient means to access capital at any time”.

The group is 13.0 % owned by Louis Dreyfus, which bought its stake three years ago for AUD 3.65 million.

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