By Simos Kokkinos
Agent, INA S.A.
It has been nearly a month since the surprise vote by the UK to leave the European Union, but it appears to be business as normal so far as the two cotton-producing countries of Greece and Spain are concerned. The larger of the cotton producing countries has always been Greece, where production is expected to total somewhere between 200,000-220,000 metric tons (mt) for the 2016 crop. Local consumption remains at 15,000 mt, and there has been no local forward coverage.
Total forward sales to date are thought to total 40,000-45,000 mt, all of which has been sold on basis by the more reputable ginners, at levels between 400-500 FOT Greece, on Z16 for shipment October/November, of which 80% is thought to have been to merchants.
The balance (20%) is direct to Turkish spinners, who as normal will be expected to take the majority of the export surplus of Greece. Egypt will also be expected to buy, based on the fact that the transit time of 1-2 days means that prompt arrivals meet with buyers requirements, and where credit is difficult to obtain. Clearly, Egyptian fumigation requirements will mean that there is 4-5 days additional delay, but nonetheless it will be high on Egyptian buyersΆ shopping lists, given that their own domestic crop not fulfilling buyers requirements!
If It's Not Late, Buyers Will be Numerous
In the event the Greek crop is on time, and is available for mid September, it is likely to be very much in demand.
Short transit times into the Far East make Greece an increasingly attractive option for many mills.
This is because the majority of Northern Hemisphere crops will actually only come online toward the end of October. In light of relatively short transit times to the main Far East markets – as well as regular sailings out of Greece – the bottom line is that this non-contaminated cotton will play an important role in fulfilling mill requirements before other new crops are readily available.
New sales out of Greece are not expected until mid-August, not just because of holidays, but also because in a monthΆs time, the ginners will have a far better idea of what the crop will be. Fortunately, and unlike last year, the crop is on time and with continued good weather, the chances of a good quality crop that is harvested from 15th September onwards will result in a better quality crop than has been seen over the last couple of years.
The ginning period is expected to last 9 weeks, and while it is almost inevitable that there will be some rains, the excellent quality parameters that Greek cotton is recognized for – almost guaranteed 1.1/8 staple, excellent strength of at least 29Gpt, and a short fiber content under 10 – means that traditional Far East markets are likely to be bidding for this cotton as soon as they are sure of the quality. Some contracts from the previous year had to be rolled over because of the lower quality produced. It is thought that there is between 5,000-10,000 mt of old crop still available.
We are reliably told that freights are unlikely to have changed much from last year, and merchant offering levels are likely to be quoted at 1200 on candf (Cost and Freight), MFEP (Main Far East Ports) for a 41 style cotton, with a 1c/lb premium for a 31-4 – all with 1.1/8 staple and prime micronaire.
The 2017 season is hopefully going to be a more interesting and profitable one than last season was, now that prices have broken out of their 2-1/2 year trading range. As far as the farmer is concerned, cotton looks like a far better alternative than wheat, where high yields have meant that prices have been pressured, and one can safely assume that if the cotton prices hold, the farmer will certainly be looking to plant more cotton than wheat in the 2017 season.
On the currency front, the farmer has gotten used to a long-term 1.05 to 1.17 range for the euro vs. the U.S. dollar. The Brexit vote has many people wondering whether the euro will weaken and possibly reach parity with the dollar. This is a very significant area to watch, as ginners pay the farmer in euros and get paid in U.S. dollars.
