Cotton Growers in Australia Whacked Again as Chinese Buyer Shuts
(Bloomberg) -- Cotton growers in Australia have fallen victim to virus-related turmoil in the global supply chain, with the local arm of a major Chinese buyer going into administration, leaving them to resell output at a sharp discount.
Administrators were appointed to Weilin Trade Pty Ltd. at the start of July, Australia’s Securities and Investments Commission documents show. Weilin Trade was set up by China’s Weilin Group in 2012.
The shutdown of the Chinese buyer comes as the world’s biggest consumer faces a glut of U.S. cotton, after buying $1 billion worth of American fiber in the past three months as part of the phase one trade deal between the two countries, despite the pandemic closing clothing stores and slashing demand.
“The fiber market has witnessed phenomenal stress in the supply chain due to Covid-19,” said Rabobank analyst Charles Clack in emailed comments.
Weilin Group in China also has operations in Shandong and Dalian, according to its website. Aside from buying and shipping fiber, the Australian arm owns and operates a farm in Coleambally, in the Riverina region of New South Wales.
Citing a reason for the business failure, Brisbane-based administrators from Vincents Accountants in a July 23 report simply said “customers failed to pay”. Vincents and Weilin Trade did not respond to emailed requests for comment. The collapse has ensnared about 100 growers and could leave them A$20 million ($14 million) out of pocket, the ABC reported.
“Weilin came into the market a few years ago and were very aggressive in terms of offering well and above the market levels,” Cotton Shippers Association Chairman Michael O’Rielley said by email. Though all other merchants are experiencing the same slowness and delays in the supply chain “no other merchant is walking away from their contracts,” he said.
Australian cotton has fallen from A$620 a bale at the start of 2020 to A$480 on July 27, amid market weakness and a strengthening Australian currency, so impacted growers could face losses of more than A$100 a bale, Clack said.
Australian growers are already hurting. They planted the smallest area to cotton this year since the 1970s, with water access and pricing making it unprofitable. Still, production could improve in 2020-21 as water becomes cheaper and more readily available in key growing areas, Abares said in July.
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Demand could take some time to rebound. Rabobank forecasts a 13% on year slump in global 2019-20 consumption, while the U.S. Department of Agriculture expects a 15% drop, both of which would be the steepest on record, said Clack.
“A demand recovery back to pre-Covid levels may not happen until the 2021-22 season,” said Rabobank’s Clack. “It remains a challenging outlook.”
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