Cotton is one of the world’s oldest known fibres and has been cultivated for at least 7,000 years. In Australia native cotton predated settlement, with foreign species arriving with the First Fleet in 1788. To this day cotton remains the most widely used natural fibre in the world, and it recently became Australia’s third most valuable agricultural export.
Rural Funds Management Limited (RFM) has a long history developing and operating cropping properties, beginning 25 years ago in the Riverina region of western New South Wales. Today, RFM continues developments on three Rural Funds Group (ASX: RFF) cropping properties in central Queensland that cover over 12,000 ha.
Image: Harvesting cotton at Lynora Downs, central Queensland, June 2022.
Australia's cotton regions and production
Cotton is an annual summer crop, traditionally planted from September to October with harvest occurring from March to April. In Australia, cotton is primarily grown in New South Wales (66%) and Queensland (33%) on predominantly clay soils on flood plains, adjacent to rivers or other water sources. The crop benefits from areas which receive a significant portion of non-cloudy days during their growing season, increasing solar radiation.
Cotton can either be dryland or irrigated. Dryland cotton relies on rainfall, requiring a full moisture profile in the soil at the start of the season and rainfall during the summer months. Irrigated cotton requires a reliable water supply from rivers, underground or other sources and typically needs between 6 to 12 ML/ ha, depending on the growing region.
In either case, the higher the average temperature and amount of solar radiation – an essential energy source for photosynthesis – the faster the crop will grow and develop. The longer these conditions extend the growing season, the greater the potential for a higher yield.
Cotton, being an annual summer crop, is often rotated with other crops such as wheat and chickpeas during winter. This helps to minimise pests and diseases, reduce pesticide use, retain soil moisture levels, build and maintain healthy soils and better manage soil nutrients. Some growers will also graze livestock between harvest and planting.
Processing the fibre
The cotton plant is a shrub that grows to approximately 1.2 m high. The plant produces branches, called ‘nodes’, on which cotton grows within ‘bolls’.
When ripe, the bolls open, exposing the cotton fibre. The cotton is then harvested or ‘picked’ using large mechanical pickers that drive along the rows, pulling the fibre from the plant. The remainder of the plant is then mulched back into the soil.
The raw/seed cotton is packed into round bales (‘modules’) to be collected and sent to a cotton ‘gin’ for processing. The term ‘gin’ is short for the word ‘engine’. The ginning process separates the seed from the lint. Waste such as leaves and sticks are removed and the ginned cotton is pressed into bales, each weighing approximately 227 kg.
While the cotton lint is the more valuable part of the plant, the seed is also a valuable by-product. Cottonseed, which is used as a livestock feed is high in protein (23%), high in energy in the form of fat (20%), and high in fibre (24%). Oil can also be extracted from the cottonseed and used for cooking and in various other products. One tonne of cottonseed yields approximately 200 kg of oil.
Another by-product is cotton ‘trash’, which is a combination of plant material and lint. This waste product is used as compost fertiliser.
Quality, exports & global market dynamics
The cotton production in Australia is renowned for its high quality when compared to other global growing regions, allowing Australian growers to command premium prices for their crops. This is largely a result of ongoing research and development of plant varieties by the CSIRO.
Key attributes of Australian-grown cotton include its superior staple length, which makes it easier to process and increases the yarn or end product’s quality, as well as high strength characteristics and consistent micronaire, which is a measure of the maturity and fineness of the cotton. These attributes make the cotton less susceptible to breakages during mechanical action or to knots ('neps').
While a relatively small producer of cotton globally, Australia is one of the top four cotton exporters, exporting over 710,000 metric tons in 2021.
The depth of the global export market is highlighted in Australia's trading history. In recent years, China has been Australia’s largest raw export market; however, in 2021 the majority of Australian cotton was exported to Vietnam and Indonesia. Substantial amounts also went to Turkey, Thailand, China, India and Bangladesh to be used in the textile industry. Australia’s cotton export value is expected to increase by 220% to $7.0 billion in 2022–23.
Cotton farmers are able to manage their price risk through a futures market that enables growers to be able to forward sell their crop for up to five years. In practice, growers will typically only forward sell a portion of their crop to allow for yield variance and other factors. In 2021–22 a large portion of the Australian cotton crop was forward sold on December contracts due to high global prices.
Interestingly, over the past 20 years cotton prices have tended to be higher during periods of La Niña. Figure 1 shows that periods of La Niña in Australia since 2002 (shaded in yellow) have corresponded with spikes in the cotton futures price (blue line). The green line shows the average cotton futures price. This trend has the benefit of high cotton prices when water storages are also likely to have been replenished for local growers to capitalise on increased output.
Figure 1: Cotton futures price and La Niña1
On the demand side, the outlook for cotton continues to be positive. Figure 2 shows world cotton consumption and world population growth since 1994, highlighting similar long-term correlation between global population and the demand for cotton. Conversely, analysis shows that cotton consumption is not as related to GDP growth as some other “food based” agricultural commodities tend to be, such as protein.
Figure 2: Global population and cotton consumption since 19942
Developments to improve productivity
Matt Mitchell, RFM’s National Manager – Cropping, has grown 30 cotton crops, one each year since 1993. In that first year he budgeted togrow seven bales of cotton per hectare (ha). This year’s crop averaged over 12bales/ha which represents over a 70% increase in productivity.
Image: Matt Mitchell, National Manager – Cropping and Don MacNamara, Farm Manager of Mayneland, inspect raw cotton module, Mayneland, central Queensland, March 2021.
The increase in cotton yields is commonly attributed to the introduction of genetically modified cotton, along with improved varieties through plant breeding. Cotton plants have genetic modifications primarily for insect resistance. The plant modifications have made a difference – once, a crop was sprayed with insecticides up to ten times during a season, but now it’s unlikely to occur at all. Additional modifications have made weed control less expensive and more manageable.
In 2016, a new cotton variety was developed which has a number of benefits, including further increased insect resistance. As a result, the cotton planting window has been extended, which can benefit growers in northern climates, such as those in central Queensland. The additional season length enables growers to plant closer to wet seasons and harvest in historically drier months. As a result, average yields in central Queensland have increased with the introduction of this new variety.
Two other cotton production systems have been adopted by central Queensland growers to improve yield reliability and combat climate variability.
The 'grow on' cotton system allows crops that have been sown in the early part of the planting window to produce a second crop within the one season, on the same plant. This technique was originally used to grow compensatory fruit after earlier fruit loss from weather events. Crops where yields had deteriorated to seven to eight bales/ha were improved to 12 to 14 bales/ha along with improved quality as well.
In recent years some growers have used the grow on system in crops with yield expectations of 12 bales/ha and added a second crop of 10 bales/ ha to achieve record yields of over 20 bales/ha.
The other production system is known as 'walk away' cotton and allows growers to maximise their planted cotton area and rely on in-season rainfall and water harvesting opportunities to complete the crop needs.
RFF cotton in central Queensland
Central Queensland cotton-growing properties within the RFF portfolio include Lynora Downs (4,963 ha, acquired in 2016), Mayneland (2,942 ha, acquired in 2018) and Baamba Plains (4,130 ha, acquired in 2021). A fourth property aggregation, Kaiuroo (27,879 ha), is scheduled to settle in 2023 and includes both cattle and cropping areas (see Figure 3).
Figure 3: RFF cropping properties3
RFM has completed several improvements to increase productivity at Lynora Downs since acquiring the property. The developments include increasing water storage from 10,000 ML to 14,142 ML and increasing irrigation areas from 779 ha to 1,560 ha (see Figure 4).
Figure 4: Lynora Downs development
Heavy-duty machinery, such as scrapers, compactors, graders and water trucks, were used to complete the water storage development at Lynora Downs. The 640,000 m3 of soil removed was used to construct the storage walls up to 10 m high, which increased the water storage capacity by 4,142 ML (approximately 1,650 Olympic-size swimming pools).
A newly constructed water delivery system, using one 1.8 m diameter, 80 m long pipe, transfers water in and out of the new water storage. Another supply pipe, 1.5m in diameter and 60 m long, was installed to maximise water harvest capabilities.
Overall, the Lynora Downs development program successfully increased the annual average planted area by 608 ha to 1,272 ha, which is a key driver of cotton property valuations. The water storage and use of irrigation provides more reliable production of annual crops for operators. Similar developments are now underway at Mayneland and Baamba Plains.
Looking ahead, RFM’s experience in operating and developing cotton operations will allow the business to identify further opportunities in the sector and effectively manage capital development programs, such as those at Mayneland, Baamba Plains and Kaiuroo.
Image: Water storage at Lynora Downs, central Queensland, June 2022.
With its unique conditions, cotton production in Australia is well positioned. Over the past 30 years, global demand for cotton – one of the world’s longest-used fibres – has steadily grown in line with world population growth, which suggests that demand will continue to increase.
The Australian cotton industry enjoys a comparative advantage with expansive suitable growing areas and soil types, favourable climatic conditions and advanced production techniques, along with specifically developed plant varieties.
These factors, combined with RFM’s extensive experience in operating and improving the productivity of cotton and cropping farms, enables RFM to maximise opportunities for RFF investors.
Image: Planting cotton at Lynora Downs, central Queensland,December 2021.
Sustainability in cotton farming and its significance in the Australian sector
The Australian cotton industry is improving water efficiency, with water-use productivity improving by 48% since 1992. Leading cotton producers now grow nearly two 227 kg bales of cotton per megalitre of water – almost double the industry average of a decade ago.
Industry-wide water productivity is now being monitored and benchmarked annually. Regular measurement of this and other climate and crop management data allows deeper analysis of the effects of soil type, rainfall, temperatures, evapotranspiration, irrigation systems, establishment method, fertiliser rates, crop rotations and other factors in driving water productivity.
Nitrous oxide (N2O) emissions are the second-largest form of greenhouse gas emissions (GHG) from the agricultural sector. The main cause of these emissions from cropping is the application of fertilisers, which contribute about 60% of the GHG that result from growing, ginning and moving to port a bale of cotton.
Nitrogen use is a focus area of cotton sustainability, as it is the biggest contributor to cotton’s carbon footprint. NUE is the measure of nitrogen use efficiency: the higher the NUE, the more efficiently nitrogen is being used.
The industry average for the five years to 2019 was 8 kg lint/kg nitrogen. Cotton Australia has reported that emissions per bale are estimated to have reduced by 6% in 2020/21 compared to 2019/20.
Despite Australia being a world leader in water efficiency and nitrogen use being the focus of cotton sustainability, the Cotton Research and Development Corporation is still looking to improve sustainability of cotton farming by:
• continuing research to improve water and nitrogen management and other significant components of cotton's environmental footprint including native vegetation and soil carbon
• understanding and informing the methodologies and metrics used to assess the footprint of raw materials and their value chains.
RFF cropping properties are also being developed with consideration to water efficiency as well as the use of technology (which reduces herbicide application) and systems which produce green manure crops (reducing N2O emissions).
1. Source: Independent Commodity Management (ICM).
2. Source: World Bank and USDA.
3. Kaiuroo settled in April 2023.