Cotton Corporation of India continues to buy cotton from farmers at MSP on all India basis. Market reported CCI bought approximately 2.3 million bales till 25th of December, 2019. Daily cotton arrivals seem to be on peak of this season; highest arrival was reported last week – approximately. 280,000 bales a day.
Trading in Indian market remains slow
Good arrivals and limited buying activities are keeping cotton prices range bound within India despite of upside move in ICE contract. Trading activity is very slow in the domestic market at the moment, and exports too have not picked up. Indian prices remain higher in comparison to world cotton prices due to Indian MSP.
Indian cotton is not competitive enough in importing countries except Bangladesh market which is buying from India due to logistical and price benefits. This year due to enough expected worldwide cotton supply consumers are also slow to build inventories at any given price.
Quality concerns remain
Pink boll worm issue continued with no clarity on affected area and production numbers, but certainly this is influencing quality of current cotton and if it continues can create quite a serious problem in grade which is already compromised this year.
Farmers are comfortable to sell cotton at MSP because they are worried with their perception that anytime CCI can change buying pattern or can withhold buying and they will have to sell at market price in open market.
During second half of December, Indian seed cotton prices were firm with good demand reported. Last week, in certain locations of Gujarat, price was reported season’s highest at Rs 600 per 20 kg and now trading around Rs 530-560 per 20 kg, depending on region/location. High price of seed cotton could not bring down cotton fibre prices because in open market seed cotton (kapas) prices also found good support and traded around Rs 1020 -1050 per 20 kg to ginning factories. Gujarat S-6 cotton fibre prices are still range bound between Rs 38800-39200 per candy depending on selling-buying activities and ICE movement.
Exports can pick up
With higher ICE (around & above 70s) and stable Indian prices (around 39000 & lower) we can have some opportunity to sell cotton in export market if currency remains weaker. Inquiries are already in the market with higher ICE, but no major trade has been reported in the market. In this season till now, exporters were able to sell Indian cotton majorly in Bangladesh market only.
Optimism for 2020
Buying has been witnessed to take ICE March contract towards USC 70 level of March 20 contract. Market is moving upwards but volume is not that impressive. Investors can wait to take calls for USDA weekly export sales report on Friday, 27th Dec. delayed due to Christmas holiday. By now US sales are running good. In fact, sales are greater than the five-year average despite US-China trade war. However, once the weekly report is published, action may become another sided, as traders ease into the last weekend of 2019.The market is optimistic that 2020 can bring a signed trade deal with China, this can again lead to additional demand for US cotton and Indian cotton at higher price.
Hope this year can give good kick to export of Indian cotton and become win-win for whole textile value chain.
(Vimal Verma is a Cotton Trader)