IT'S BEEN a tough start to the year for Australia's cotton producers.
Not only have they been subject to a high profile campaign for irrigation rights in northern NSW and southern Queensland to be cut due to concerns about the negative impact cotton has on the Murray Darling Basin, claims the sector strenuously denies, but gross margins are likely to be well back as well.
There has been a hefty fall in international cotton futures over the past week, sparked by information coming out of the US.
The US National Cotton Council estimated that plantings in the US would be up 3 per cent year on year, which will make up for much of the expected decline in plantings in other key cotton growing nations, such as Australia and Burkina Faso.
The Cotton Council said farmers were switching back into cotton after a big soybean season last year.
Immediately after the Cotton Council announcement the cotton futures price on the New York Stock Exchange, the major setter of prices in international cotton, fell 2.75 per cent to its lowest level in 15 months as a result.
Tobin Gorey, Commonwealth Bank senior analyst, said in a report the cotton sector was happier with the supply and demand dynamic at present.
"Another day of sharpish falls serves only to reinforce the impression that the cotton market is transitioning to a more comfortable supply context," Mr Gorey said.
Phin Ziebell, NAB economist, said Australian Bureau of Agricultural and Resources Economics and Statistics (ABARES) data from December showed Australian cotton lint production was likely to be well down, a result of the lack of available water.
"The latest ABARES forecasts for December points to a 42 per cent decline in lint production to 581kt, owing to a sharp reduction in irrigation water availability," Mr Ziebell said.
Dryland cotton plantings were also down, due to a combination of a lack of rainfall and good returns on offer in rival summer crops, such as sorghum, which are lower risk in dry seasons.
The US Department of Agriculture (USDA) has a slightly lower figure again for 18-19 Aussie production, at 561,000 tonnes or 2.6 million bales.
Harvested area in Australia, according to the USDA, will be down 43pc year on year and yield is forecast to be 1.9 tonnes a hectare of lint.
That figure is around the five year average, but this is because there is not much lower yielding dryland cotton planted.
Along with the production issues, there are also worries about the US / China trade war.
Chinese tariffs are hurting US cotton producers, which in turn drags international values down.