Cotton fundamentals to remain tight in the next season

India’s cotton balance sheet for 2022-23 is likely to be rather tight and price relief, if any, could only be temporary in the months ahead.

While the last five-year area coverage averaged 126 lakh hectares, the planted area as of August 26 is 124.5 lakh hectares, according to the latest data from the Ministry of Agriculture. The planting window closed long ago.

Given the supply tightness in 2021-22 and high prices, it was logical to expect that the planted area would show a marked increase over last year and perhaps reach 130 lakh hectares; but that’s not to be. Indeed, the growers’ tepid response to high prices should set everyone thinking.

Even though planting started by mid-May in some parts of the country, it is likely that the hesitant progress of the South-West monsoon in June discouraged growers. Competition for acreage from other crops is also a reality, but it is necessary to empirically investigate the reasons. 

Output may be less than 350 lakh bales

For 2022-23, the government has fixed the cotton production target at 370 lakh bales (170 kg); but on the current reckoning, production is almost certain to fall well short of the target.

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Looking at area coverage, rainfall patterns and reports of pest infestation in some parts of the country, it may be safe to expect that production would be somewhere in the range of 335-345 lakh bales, assuming the weather remains benign in the coming months. But weather risks cannot be wished away.

This is not exactly a happy situation for cotton users, who must feel concerned about the availability of this natural fibre over the next several months. They are already rather upset about current high prices and tightening availability. Many spinning mills have reportedly reduced or ceased operations. They would most likely revive operations when availability improves by November-December.  

Already, the season will start with low opening stocks because the 2021-22 production estimate has been progressively reduced to 312 lakh bales, a multi-year low and down 40 lakh bales from the previous year.

Higher offtake

Consumption demand is most likely to increase 8-10 per cent from last year to about 325 lakh bales in 2022-23, while imports, especially of premium varieties like extra-long staple cotton, are likely to increase to about 25 lakh bales.

A strong case is developing for duty-free import of cotton in support of the user industry that provides jobs and export earnings. If anything, even the international market will face tight supplies in 2022-23 because of drought in the US that is expected to lead to lower output, lower export and lower-end stocks. World cotton production is forecast to trail world demand and lead to a further reduction in closing stocks. This is a bullish signal for the world market.

So, for the second year running, the world and the Indian market will face tight availability of cotton and firm prices. To be sure, this is not the first time, nor will it be the last. The development should set the stakeholders thinking about the future trajectory of this crop, and of the cotton sector as a whole.

For this important cash crop, it is critical to evolve a holistic long-term and predictable policy environment that judiciously balances the interests of growers, processors, exports and other value chain participants.

(The author is a policy commentator and agribusiness specialist. Views are personal)