THE cotton revival that has seen a trebling of Australia's cotton production over the past three seasons will slow in 2012-13, Rabobank forecasts, but growth will continue.
In a report released at the Australian Cotton Conference this week, Rabobank commodities analyst Tracey Allen calculates that overall cotton plantings will decline by about 10 per cent, but ample water and irrigated cotton's unrivalled profitability will push output to a new record of 4.95 million bales, up on the last season's estimated output of 4.5m bales.
As Ms Allen summarised in one of her report's headlines: "the reign of cotton continues".
But for dryland growers, cotton is not the easy choice it was in the past two seasons. The summer planting will provoke some thought, and time working the calculator.
Grain prices are heading into record territory, courtesy of drought in the United States and the Baltic region, while cotton prices have eased and the Australian dollar, a big influence on cotton's profitability, remains persistently high.
In the dry years of the 2000s, these factors might have weighed more heavily in favour of grain - but in most areas, cotton's profitability can't be beaten, Ms Allen said. And irrigation storages are brimming.
The question of cotton vs grain will apply mostly to dryland producers. With an El Nino phase looming, sorghum, maize or sunflowers present lower risks than cotton, but also generally lower gross margins from a successful crop - even at Rabobank's forecast sorghum prices of 180/t.
While the gross margin returns from cotton should remain higher than those from sorghum given good yields, the risks of failure from cotton are also higher.
For this reason, Ms Allen thinks that the push into dryland cotton of the past few years will contract by about 34,000ha, a third of last season's record dryland plantings.
For irrigated farms, cotton's gross margins coupled with the highest levels of water security most growers have experienced in a decade make cotton production a much easier choice.
Working on yield assumptions of 11 bales per hectare and growing economies of scale, Ms Allen estimates that 2012-13 gross margins from cotton in northern NSW will come in at $2100 a hectare.
In Queensland and Central West NSW, those returns may come back to $1700/ha based on slightly lower yield.
Only in southern NSW, where forecast irrigated cotton margins are back to $1500/ha, does Ms Allen think other crops might challenge cotton's dominance - specifically gritting maize and soybean, which have forecast gross margins of $1900/ha and $1500/ha respectively.
On the international cotton front, new technologies are helping countries like India and China produce cotton of a grade and consistency they could never achieve before.
But India's smallholder farm model impedes efficiency, as does China's internal cotton buying program, which rewards China's cotton producers better than the international market and removes incentives to make efficiency gains.
Australia's cotton producers are still unequalled at producing consistent supplies of high-quality cotton, Ms Allen said.
With local production expertise still advancing, and gross margins still unbeatable in a year when price trends should challenge cotton on several fronts, "Cotton is still king," Ms Allen concluded.
The 8-page Rabobank Global Focus report Cotton's superior profitability to be challenged is available from www.rabobank.com.au.