Active Delayed Monsoon Can Stabilise Cotton Prices Ahead

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Cotton Acreage

Indian cotton market prices are continuing the upside trend. There are many factors now that will support the higher prices – good demand from local mills, delayed monsoon, higher consumption than expected, reduced stocks in hand of CCI and traders, higher MSP for upcoming season, higher consumption projection for upcoming season and also market information about installation of new spindles in coming season across India, mainly in Gujarat, which will again lead to higher consumption.

ICE is trading range bound from last couple of weeks with current level of ICE December USC 88 level, also US weekly export sales are weaker comparatively. Higher shipment pace is required to achieve the targeted US export numbers which does not seem possible as of now.

Sowing of unauthorised GM cotton on the rise in India

Market sources reported, current season has seen the highest sowing of unauthorised genetically modified (GM) cotton. As compared to the sale of approximately 30 lakh packets of this hybrid in 2018, seed companies say, this year, the sales have been between 60-65 lakh packets.

Cotton is the only GM crop allowed to be cultivated in India. However, farmers can only grow Bt cotton that can naturally protect itself against natural pest – the pink bollworm.

However, since the past few years, cotton growers have veered towards another hybrid, which allows the plant to develop resistance to the application of herbicide glyphosate or HT BT. Manual weed control, cotton farmers say, is both time consuming and difficult given the paucity of labourers in rural areas.

Cotton sowings and area under cotton

All India cotton sowing progress was lagging comparatively, but from the last two days good monsoon rains are reported across the country covering almost all cotton growing areas. This is very much helpful for cotton already sown and this will boost new cotton sowing as well. Cotton is gaining area in the largest producing state of Gujarat. But in other states, acreage is lower than last year as farmers are opting for other competing crops such as oilseeds and pulses.

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According to data till July 12, cotton has been planted on about 18.43 lakh hectares (lh) in Gujarat, a marginal increase from 18.25 lh in the same period a year ago. On pan-India basis, the area is lower by 17% at 86.45 lh as of July 9 compared with 104.82 lh in the year-ago period. However, the acreage this year is marginally higher than the average of 2016-20.

Trade expects acreages to rise further in Gujarat, while the overall area under cotton may end up lower than last year’s levels as sowing has been completed in northern states and is in the last phases in other states.

In Maharashtra and Telangana, the acreages are lower by about a fifth, compared to last year. In Maharashtra, where the unapproved HTBt cotton is seen making further inroads, the cotton acreage till July 9 was 30.71 lakh ha (38.03 lakh ha), while in Telangana it was 14.13 lakh ha (18.22 lakh ha) and Karnataka at 2.7 lakh ha (2.83 lakh ha). Trade sources said the unapproved HTBT seed varies are also finding favour with farmers in Karnataka and Telangana.

WASDE for cotton on 07/12/2021

The US 2021/22 cotton projections show higher production, exports, and ending stocks compared with last month. While the June 30 acreage report shows 300,000 fewer planted acres for US cotton than NASS’s previous survey, a rainfall-driven reduction in projected Texas abandonment means US harvested area is projected 9% higher.

While 2021/22 production is 800,000 bales higher, consumption is unchanged, and exports and ending stocks are each projected 400,000 bales higher. The upland cotton farm price for 2021/22 is unchanged, at 75 cents per pound, while the 2020/21 price is reduced one half cent to 66.5 cents per pound. World 2021/22 ending stocks of cotton are projected 1.6 million bales lower than in June as largely offsetting changes in production and consumption do little to offset lower estimated beginning stocks.

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Beginning stocks are 1.5 million bales lower, largely due to reduced 2020/21 Brazilian and Indian production and higher Indian consumption. World production in 2021/22 is projected about 500,000 bales higher this month as a larger US crop more than offsets a 300,000-bale decline for Pakistan. Consumption is slightly more than 600,000 bales higher largely due to an increase for India. World trade is projected 670,000 bales lower, with China’s imports 1 million lower and Brazil’s exports 1.1 million bales lower.

US crop development

US crop is still late on squaring and setting bolls. This can certainly be attributed to the amount of rainfall the cotton belt has received since planting and shortage of sunny hot days. Once the summer temperatures do start to heat up, however, the crop will attempt to catch up. The condition of the crop did show a slight improvement with the poor category down one percent, now standing at 9%.  Texas went from 13% poor last week to 12% this week.

US cotton export sales for week ending July 1, 2021

Net sales of 52,100 RB for 2020/2021 were up 22% from the previous week, but down 38% from the prior 4-week average. Increases primarily for Pakistan (24,000 RB, including 600 RB switched from the United Arab Emirates and decreases of 300 RB), China (7,400 RB, including decreases of 200 RB), Vietnam (4,700 RB, including 900 RB switched from China and decreases of 1,100 RB), Turkey (4,500 RB, including decreases of 1,500 RB),  and South Korea (4,400 RB, including decreases of 100 RB), were offset by reductions for the United Arab Emirates (600 RB) and Ecuador (300 RB).

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For 2021/2022, net sales of 177,000 RB were primarily for Pakistan (58,500 RB), Turkey (32,800 RB), El Salvador (20,900 RB), Indonesia (19,100 RB), and Thailand (11,900 RB).

Exports of 294,800 RB were up 8% from the previous week and 13% from the prior 4-week average. Exports were primarily to Vietnam (71,300 RB), Pakistan (58,600 RB), China (42,400 RB), Turkey (42,300 RB), and Mexico (31,800 RB).

Net sales of Pima totaling 5,400 RB were up noticeably from the previous week and up 24% from the prior 4-week average. Increases were primarily for Thailand (2,100 RB), Peru (2,000 RB), and Pakistan (900 RB). Exports of 19,200 RB were up 84% from the previous week and 42% from the prior 4-week average. The destinations were primarily to India (7,000 RB), Pakistan (4,300 RB), China (3,700 RB), Vietnam (2,200 RB), and Peru (1,200 RB).

(Vimal Verma is a cotton trader)

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