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Edgar Vhera

Agriculture Specialist Writer

THE country’s largest cotton merchant, Cottco, is set to witness a surge in earnings on the backdrop of firming lint prices on the international market coupled with rising levels of lint processing into yarn.

In its latest trading update from July 1 last year to August 31 2023, Cottco said its value addition initiative had seen the company converting over 800 tonnes of lint to yarn for the local market.

Prices paid for yarn are much higher than those paid for lint.

“Cottco has paid a deposit for a 60-tonne-per day oil expression plant and commenced the site clearance in Gokwe. Commissioning of the plant is targeted for early 2024 and is expected to contribute towards rural transformation and development,” said the trading update.

An analysis of the business operating environment has shown that international lint price surged 14 percent from US$0,78 per pound at the beginning of July 2023 to US$0,89 per pound in recent weeks due to the Northern Hemisphere crop being under threat from drought conditions. Globally, the 2023/24 production forecast was lower by 2, 7 million bales, while consumption saw an increase of 500 000 bales causing prices to firm, said the update.

The report bemoaned extremely tight local market liquidity conditions that were experienced during the period under review with Cottco initially struggling to access funding from approved facilities.

“However, funding was unlocked as the season progressed and is expected to improve as revenues from the sale of products are received. Farmer morale has been improving from the 2021/2022 buying season where we paid them 75 percent of their earnings in United States Dollars (USD) and interest to grow the crop was rekindled resulting in 360 224 farmers being registered compared to 294 202 growers in the previous season,” said the report.

Cottco has to date managed to pay US$15,9 million for this season’s seed cotton of 69 146 tonnes with the remaining balance of 32 percent expected to be paid by the end of this month as market liquidity improves.

This year’s intake was a 48 percent increase from 46 748 tonnes in 2022.

The report indicated that ginning had commenced at all ginning sites and product deliveries were underway with the company’s order book surpassing the available supply.

To increase profitability, Cottco has been implementing cost containment strategies such as a 100 percent roll out of Smartfarmer, an Enterprise Resource Management system enabling a real-time capturing of farmer information since 2022.

A mix of local borrowings and off-shore pre-finance arrangements was utilised in the 2023 buying season to reduce finance costs. This alongside improved intake volumes, allowed the company to forecast marginal profits for the year ended 31 March 2024, read the report.