Trading in the cotton market continues to witness a down trend amid unabated fears of COVID-19. Uncertainty to conquer it with deadline and in absence of actual and real time information, various industries including cotton, are suffering and not able to take decisions. Shipping and logistics industry is severely affected in countries where coronavirus has been reported/suspected or in connecting countries where the presence of the deadly virus is already confirmed. Countries are shutting down borders to contain the virus, and protect their citizens.
Coronavirus has spread across the globe, with 39 countries confirming coronavirus cases, and eight countries reporting suspected cases (as on 26th Feb); the outbreak has already placed the world on a public health high-alert. A downturn in economic activities is already being witnessed, and that would include new apparel purchases.
Uncertainty absolutely discourages buyers in any market, and especially cotton which is well connected with the Chinese market. ICE cotton is nearing its lows of early December 2019, after a rally in January.
In the US, the last few weeks have seen very strong business with marketing year highs in sales and shipments. However, it will be interesting to see if the pace of US cotton business stays strong to those Asian nations affected by coronavirus. USDA’s early projection for 2020 US cotton planted acreage is 12.5 million acres – 9% below 2019 and the smallest area since 2016.
Other contributing factors to uncertainty regarding acreage decisions for 2020 include production issues and results during 2019, the effects of the Phase One trade agreement with China and the impact of the coronavirus on cotton demand. The final look at projected acreage for 2020 comes with USDA’s Prospective Plantings report on March 31, based on a survey of producer planting intentions to be conducted in early March.
Recently reported China will grant exemptions on retaliatory duties imposed against 696 US goods, the most substantial tariff relief to be offered so far, cotton can be a part of it.
US Export Sales For Week Ending 2/13/2020
Net sales of 235,300 RB for 2019/2020 were down 33% from the previous week and 30% from the prior 4-week average. Increases are primarily for Vietnam (57,300 RB, including 700 RB switched from Japan and 400 RB switched from Taiwan), Pakistan (57,200 RB, including decreases of 27,100 RB), Turkey (46,600 RB, including 7,300 RB switched from Vietnam). Exports of 375,700 RB were down 6% from the previous week, but up 5% from the prior 4-week average. Exports were primarily to Pakistan (97,100 RB), Vietnam (85,200 RB), China (46,400 RB), Turkey (31,400 RB), and Indonesia (21,100 RB).
CCI launches HIRA
Meanwhile, in India, the Cotton Corporation of India (CCI) has launched “HIRA,” (High in Reliable Attributes) a brand name for Indian cotton with specific quality parameters. This brand cotton will have minimum trash (less than 1.7 %), low moisture, better grade, etc. This is a much awaited, commendable initiative which should help Indian cotton get international recognition.
CCI is supporting the Indian cotton farmers quite well by purchasing of best possible quantity and quality at MSP price. CCI is continuing to buy in the market as cotton is still trading below MSP. Sources reported CCI and Maharashtra Cotton Federation jointly can buy more than 10 million cotton bales for the season 2019-20, which would be nearly 25-30% volume of estimated crop for the season 2019-20. Again this would be a great support to Indian spinning industry as well if CCI sell its cotton when the industry needs it, at real prices, and an actual premium for quality cotton.
Indian physical cotton market is in a downtrend but still not with 1:1 with international cotton prices due to big disparity reported by Indian ginners as seed cotton prices are higher due to MSP support and same time cotton seed is trading at its lower level with lower cotton lint prices. Most of the ginning factories have reduced productivity to reduce losses, thus resulting in low availability of quality cotton (bales) in the market.
Till end of February 2020, all India cotton arrival for season 2019-20 is expected to reach 26-26.50 million running bales. It is reported that farmers still have good amount of quality cotton in view of better prices in near future.
MCX cotton is trading lower and MCX cotton prices for the current month (Feb- near to expiry) are lower than the physical cotton prices in open market. As of now Indian currency is one of the most stable currencies, trading within narrow range limiting currency risk to market.
It would be again interesting to see developments toward fighting coronavirus in international markets; and within India, to see how CCI will move ahead to sell its cotton in this international bearish sentiment due to COVID-19.
(Vimal Verma is a Cotton Trader)