Australian Farmers Cotton to High Cotton Prices

WHILE Australia's wool growers are fasting, the country's cotton producers are feasting. If the weather remains good, this will be a record season for the cotton growers, who are just beginning to harvest their crop. The good crop will come at a time of relatively high world prices and the lowest stocks since World War II. This will help the 1,000 farmers and corporations in the business.

``We're basically the only [Australian] commodity doing well,'' says Maree McCaskill, executive director of the Australian Cotton Foundation, an industry support group.

The Australian Bureau of Agriculture and Resource Economics estimates Australia will produce 1.5 million bales of cotton this season, up from 1.36 million bales last season. With 90 percent of the cotton exported, it will produce export income of US$550 million.

The boom for the cotton growers comes at a time when the nation's 60,000 wool producers are looking at a potentially disastrous year. Last week the Australian Wool Corporation stopped supporting the price. In initial free market trading, the price of wool fell as much as 40 percent.

The times are so good for the cotton farmers that farmers are shifting into cotton from wheat, soybeans, barley, and other grains. Ms. McCaskill expects Australian production to continue to expand until the year 1995. By then, water licenses for irrigation will be scarce, limiting further growth in production.

Many farmers remain cautious. ``If we get a good crop, we'll make some money,'' says Bruce Loder, managing director of Auscott Ltd., which owns cotton properties in northern New South Wales.

Mr. Loder is guarded because of the fickle nature of the weather. For the last two years, however, it has rained in the cotton belt during March and April - normally dry months. ``If it starts raining you start losing quality. the bushes droop in the mud. It makes it more expensive to harvest,'' Loder says.

In addition, early in the year there was a major infestation of thrips and mirids - sucking and chewing pests. In early December, there was a large infestation of budworms. The bug invasion required heavy doses of pesticides. To cope, cotton farmers are using high technology, computers, and consultants.

The use of chemicals and irrigation adds to the expense of cotton farming. McVeigh estimates it costs about US$540 per acre to grow his cotton crop on his family's 9,000 acres. By way of contrast, it costs about US$62 per acre to grow wheat. However, wheat is barely returning a profit to the farmers this year.

But McVeigh expects to receive US$358 net per bale of cotton. His farm averages 3.25 bales of cotton on its 4,500 acres of irrigated land and 1.3 bales per acre on its 4,500 acres of nonirrigated land. McVeigh will make about US$623 per acre or about US$2.8 million on his irrigated land alone. But he will still owe taxes and interest.

The cotton crop also gives McVeigh flexibility in marketing his product. Unlike the wool producers, McVeigh does not have to sell product to a central marketing organization. Instead, he is responsible for his own marketing. Thus, he can use the futures markets to sell his product forward and lock in the price he will receive at harvest.

``There is a lot more security in growing cotton,'' he explains. In addition, he gets his money right away when he sells the actual product to a buyer. With a central marketing organization, such as the Australian Wool Corporation, it can take months until a farmer gets paid.

Of course the cotton farmers have not always had good times. Hail storms can destroy an entire crop. And, McVeigh recalls that he either lost money, or just barely made any money, in his first eight years. ``It's been improving ever since,'' he says.