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Australian Farmers Sow More Cotton on Currency Slide (Update1)

By Madelene Pearson

Oct. 22 (Bloomberg) -- Cotton production in Australia, the world's fifth-largest exporter, will be higher than expected after a drop in the local currency prompted increased planting, Namoi Cotton Co-operative Ltd. said.

Output from the crop being sown may be 1.4 million bales, said Bob Bell, chief executive officer of Namoi, which markets more than 40 percent of the nation's crop. That compares with some predictions two months ago of output of less than 1 million bales and the previous harvest of 600,000 bales, he said.

Australian cotton production has been cut the past three years because of drought. The nation's currency has slumped 31 percent from a 25-year high against the dollar reached in July.

``With the expectation that the Australian dollar will remain at low levels throughout 2009 and the prospect of a resurgence in global cotton prices in the back end of 2009, cotton is looking competitive to competing crops,'' said Doug Whitehead, agricultural commodity strategist with Australia & New Zealand Banking Group Ltd. ``A lower Australian dollar is generally beneficial for Australian export products.''

Cotton futures for December delivery rose 3.1 percent to 50.6 cents a pound on ICE Futures U.S. in New York when last traded yesterday. The Australian dollar traded at 67.81 U.S. cents at 2:12 p.m. in Sydney.

U.S., China

Futures last week fell to the lowest since February 2005 on concern slowing economies globally will reduce demand for products made from cotton. The growth rates of the U.S. economy, the world's largest, and China's, the largest cotton consumer, are expected to slow this year to 1.6 percent and 9.9 percent respectively.

About 80 percent of the Australian crop, which will be harvested from about March next year, has been planted, Namoi's Bell said in a phone interview from Toowoomba, Queensland state. The drop in the currency has boosted the appeal of cotton over other crops grown in the Australian summer, including sorghum, he said.

``The fall in the Australian dollar has been very favorable for cotton,'' Bell said ``Planting in most areas is substantially complete.''

Namoi Cotton rose 2.6 percent to 39 Australian cents on the Australian stock exchange at 1:34 p.m. in Sydney.

Global cotton consumption is expected to ease because of the credit squeeze, though there hasn't been a great effect yet, Bell said.

``Apparel and textiles in some areas are considered discretionary spending, so we would expect globally some softening and some readjustment,'' he said. ``Particularly at the high end of the market, people tend to defer their spending or look for something cheaper.''

The U.S. is the world's top cotton exporter, followed by India, Uzbekistan, Brazil and Australia, according to U.S. Department of Agriculture data.

To contact the reporter on this story: Madelene Pearson in Melbourne on [email protected]

Last Updated: October 21, 2008 23:43 EDT