China could well turn out to be the bear in the global cotton market. This should have the Indian growers worried, particularly if one were to go by the US Department of Agriculture’s recent report on global cotton markets.
The USDA report sees China’s excess stocks staying for a while. This means prices will continue to be under pressure until there is some sharp spike in consumption or a sharp fall in production in one of the largest producing nations.
According to the report, China’s price support and import policies have resulted in its inventories rising to 45 million US bales (of 218 kg each) or 57.78 million Indian bales (of 170 kg each). This is equivalent to what India produces for almost close to a year-and-a-half. For the US, it is two-and-half-year production.
The USDA sees production in China dropping by 25 per cent from this year’s 29.4 million US bales.
This year itself China’s production is eight per cent lower against 31.71 million bales last year.
At the same time, consumption will have to increase by 20 per cent in the Communist nation over the next six years from the current offtake of 36.4 million US bales. Chinese stocks have built up because it buys cotton from farmers at prices higher than rates prevailing in the global market to encourage growers, especially in the Xinjiang province.
Whether China can afford to discourage its growers is a million dollar question; but its task to cut the inventories is a tough one. That’s why globally Chinese stocks are seen as dampener for the trade.
Indian exports For Indian growers, this doesn’t augur well. Cotton exports this season that began in October are seen dropping to a four-year low of 6.4 million bales against 12 million bales last season.
A small consolation, though, is that domestic consumption is likely to rise to 31.3 million bales from 30.1 million bales.
As a result of a marginal rise in consumption and exports almost halving, carryover stocks in India from this season is set to rise to a record 17.44 million Indian bales from 14.49 million bales.
Globally, too, the carryover stocks are set to rise to 107 million US bales from 101 million bales.
These data do not augur well for any cotton grower in the world, leave aside India.
Already, farmers in the Saurashtra region of Gujarat are talking of shifting to other crops such as soyabean.
Growers could have been in more trouble but for the Cotton Corporation of India intervening in the market to buy at the minimum support price ₹4,050 a quintal.
Prices are ruling at the support price level currently as arrivals have peaked and demand is slack.
The current situation could result in growers losing interest in growing the natural fibre.
Cotton production has been on the rise ever since Bt cotton was introduced in the country. But with labour and input costs rising, growers are looking for better returns.
Cotton yarn exports are on the rise but how much can the shipments help is anybody’s guess.