The cotton market has, at last, produced a sign that low prices are dissuading growers from sowing the crop, raising hopes that record world inventories of the fibre may begin to start to be eroded.

Farmers in Australia have slashed cotton sowings for 2012-13 by 30%, far more than initially thought, US Department of Agriculture staff in Canberra said.

In non-irrigated areas, the decline has been particularly sharp, potentially by as much as 50%.

While the extent of the drop reflects in part agronomic factors, such as drier seeding conditions for dryland areas and a desire to improve crop rotation, it is also down to the tumble in prices which have tumbled by two-thirds from record highs in March last year.

"The overall decline in area reflects growers' response to the decline in world cotton prices," the USDA staff said.

"The shift in area planted is further supported by current high prices for alternative summer crops such as corn and sorghum."

'Plantings did not drop much'

While many observers have been expecting a steep drop-off in sowings because of the weaker market, with Rabobank for instance this week foreseeing a rise in US wheat seedings for 2013 harvest as southern growers switch out of cotton, evidence of a decline in production has been slow in coming.

The International Cotton Advisory Committee earlier this month, upgrading its estimate for world cotton production in 2012-13 by 400,000 tonnes to 25.88m tonnes, noted that "despite the sharp fall in cotton prices… cotton plantings did not drop much".

The small decline was "due to above-average prices at planting time, government policies and favourable weather in some major producing countries" in the northern hemisphere, the committee said.

In the US, while sowings this year did show an above-average decline, production is seen as having risen nearly 2m bales thanks to improved rains in southern states which suffered drought in 2011, and fared relatively well in soil moisture terms this year.

Rabobank has forecast a steeper drop in world sowings in 2013-14, of 13%, although that even this "is not substantial enough to limit production and erode ending stocks".

Export implications

The USDA bureau pegged Australia's output this year at 4.0m bales, a drop of one-quarter year on year, and some 250,000 bales below the department's official estimate.

It is also below the 991,000 tonnes (4.55m bales) that Abares, the official Australian commodities bureau, has pencilled in, among forecasts which included an estimate for the country's exports in 2012-13 of 1.04m tonnes (4.75m bales).

While Australia is a relatively small producer of cotton, it is an important exporter, and has been expected by the USDA to rank second, behind the US, in 2012-13.

The USDA bureau pegged Australia's shipments at 4.0m bales, a level which would rank the country equal second, with Brazil.