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Namoi Cotton flags 'decisive action', after cotton woes dent profit hopes

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Namoi Cotton said it was taking “decisive action” to shore up its performance, in the face of a double whammy of low cotton prices and weak Australian production, cutting hopes for half-year results.

 

The group – in which Louis Dreyfus is the top shareholder - said that its share of March-to-August operating results at its 51%-owned Namoi Cotton Alliance (NCA) cotton marketing joint venture had been hit by Aus$2.5m-3.5m by “persisting negative local and global market conditions”.

 

NCA’s margins had been hurt by weak prices of cotton, in the face of a “significant increase in the global supply” of the fibre.

 

New York cotton futures in August set a three-year low, on a spot basis, of 56.19 cents a pound.

 

Earlier this week, the International Cotton Advisory Committee warned that “with plentiful supplies and weak export demand, the price on the Cotlook A Index,” which measures physical values, “has dropped to its lowest point since 2016”.

 

‘Decisive action’

Meanwhile, Australia’s cotton industry faces the prospect of depressed volumes too, given the persistent dryness in the Australia’s eastern cotton-growing region, where Namoi Cotton is based,

 

Noting “the ongoing severe drought conditions prevailing in inland New South Wales and Queensland”, the group acknowledged an “impact on cotton production and hence cotton supply to our ginning and marketing operations”.

 

Michael Renehan, a former irrigation boss who became Namoi Cotton’s chief executive last month, said that “this is an extremely challenging year for the company due to the significant disruptions we’ve seen in [the] global cotton market, exacerbated by the drought in eastern Australia”.

 

“We are now taking decisive action to ensure that the organisation has both the capacity and capability to work its way through the balance of this financial year, while maintaining operational service standards for customers.”

 

The group has already announced measures including freezes on capital expenditure and management salaries and a review of all costs, while entering talks with lenders over financing for its financial year to February 2021.

 

Harvest forecasts

Namoi Cotton stopped short of updating its forecast for the 2019-20 Australian cotton crop, for which sowings finish in December, and which it has previously pegged at 600,000-1.1m bales (130,000-240,000 tonnes).

 

Abares, the official Australian commodities bureau, last month pegged output at 294,000 tonnes, and Cotton Outlook at 250,000 tonnes.

 

The US Department of Agriculture pegs production at 1.40m bales, the lowest in 12 years on its data.

 

Namoi Cotton shares closed unchanged at Aus$0.34 in Sydney.

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