Outlook looks weak for cotton

The Cotton Corporation of India (CCI) is likely to resort to a major procurement drive to support growers with major producing States such as Gujarat and Maharashtra asking the Centre to speed up buying.

Despite a delay in sowing, a record area has been brought under cotton this year as revival of monsoon resulted in sowing picking up pace after mid-July. According to the Ministry of Agriculture, cotton has been planted on 12.6 million hectares this year, 7.7 per cent higher compared with11.7 million hectares a year ago. In view of this record acreage, cotton output is expected to be above 400 lakh bales (of 170 kg) in the 2014-15 season.

According to data from the Cotton Association of India (CAI), cotton production is expected to be 405.5 lakh bales this crop year to September against 407.25 lakh bales a year ago. The decline is expected because of a fall in output due to unseasonal rains in Gujarat and Maharashtra affecting the crop.

According to CAI, Gujarat is likely to produce 126 lakh bales this season compared with 129.25 lakh bales a year ago, while Maharashtra is expected to produce 83 lakh bales, down 4.6 per cent from 87 lakh bales in 2013-14. Total supply will be 477.4 lakh bales and domestic consumption is projected to be 306 lakh bales, leaving a surplus of 171.4 lakh bales.

The Cotton Advisory Board (CAB) estimates exports at 65 to 70 lakh bales in the current season. This figure is down by almost 45 per cent compared with the 118 lakh bales exported in 2013-14 season. This fall is attributable to weak demand from top consumer China. China’s cotton imports in October dipped to 81,900 tonnes, down by 42 per cent year-on-year. China, the world’s largest cotton importer, accounts for more than 60 per cent of total cotton exports from India. Bangladesh may also opt to import from the US and Pakistan due to lower prices.

However, despite lower demand from China and Bangladesh, India is expected to see good demand from Thailand and Pakistan, which might offset partially the negative impact.

The decline in world prices, and rise in arrivals have led to a sharp fall in recent months, with prices dipping below the minimum support price level of ₹4,050/quintal.

Given this scenario, the Cotton Corporation of India has started procurement to protect the interests of farmers, with buying underway in Karnataka, Telangana, Andhra Pradesh, Gujarat and Maharashtra.

The CCI has said it plans to procure a record of 10 million bales this season. Around 8 lakh bales have been procured so far in Telangana, Andhra Pradesh and Madhya Pradesh; it will buy 60 lakh bales (of 170 kg each) of cotton from Telangana, Andhra Pradesh, Madhya Pradesh and Maharashtra. Depending on market conditions, the CCI is expected to ease its inventory over 12-15 months. However, exports, with domestic prices hovering above overseas prices, will be difficult.

In the medium term, cotton prices are expected to trade on a mixed to weak note, as the demand slowdown in China, and expectations of bumper crop from US and India work to keep prices under check. However, procurement by the CCI, which is expected to pick up pace in the coming days, may provide support to domestic prices.

The writer is Research Analyst, Geofin Comtrade Ltd. Views are personal.