Indian cotton prices are trading on a firm note after taking a price dip in mid of June. Gujarat physical cotton prices traded around Rs 52,000 per candy for good grade stock cotton which is equivalent to USC 89+ per lbs ex-warehouse. Running quality cotton (29mm/74-75 RD) is getting traded around Rs 51,000 per candy, which is equivalent to USC 87+ per lbs ex-warehouse. Along with open physical market MCX cotton is also trading on its high around Rs 24,700 per bale equivalent to USC88+ per lbs ex MCX warehouse.
After jump in Indian cotton prices to season’s high level, consumers and traders started to investigate import possibilities, but existing 10% import duty on cotton disappointed potential importers and they could not make imported cotton competitive enough with high Indian prices and import duty. In view of the same, mills and other associations are approaching the government to lift the import duty as early as possible.
Despite the drop in margins of spinning mills, mills are making handsome money with current cotton prices too. Continued demand from mills and good export numbers booked was major cause of this jump in local cotton prices. It was remarkably interesting that yarn margins were better in local market than the export market during the season. This was estimated sound and big spinning mills are carrying comparatively higher stock of approximately three months, but current demand from almost every category should keep the stock positions viable. All India weekly arrivals of cotton has slowed down to approximately 40,000 bales. Good export demand with lucrative Indian cotton prices across borders, India could have achieved export numbers of 6.5+ million bales till now and market is estimating this can go up to 8.50 million bales till September. Earlier this export number was estimated at 7 million bales by the market. The new numbers seem tough to achieve with lower export demand at higher prices. Stocks with ginners are declining because they had good opportunity to book profits, Traders and merchants also kept selling cotton at good prices. Indian prices have become more attractive for seller when ICE was stable but Indian prices kept moving up.
New MSP for 2021-22 crop year
Recently the government raised the minimum support price (MSP) of new season 2021-22. Prices have been raised 3.8% for medium staple and 3.4% for long staple compared to last year. The government has raised prices to keep 50% profit margins for farmers on cultivation costs of kharif crops. Prices rose for medium staples from Rs 5,515 to Rs 5726 and for long staple cotton from Rs 5825 to Rs 6025 per 100 kgs.
The increase in MSP however did not influence the cotton sowing areas and market prices to the extent expected. However, with improved demand from mills and export markets, Indian cotton prices can trade at better level, in which ICE cotton will also play a vital role.
CCI continues cotton sales
CCI has continued selling its cotton. Now with lower stock available with CCI with selected quality of remaining stock, buyers are not taking so much interest with offered prices from CCI. Even so, CCI is able to sell decent volumes as there is some short supply in the open market. CCI has sold 12.40 million bales this season against procurements of 9.20 million bales. It is left with around 2.4 million bales only. Maharashtra Federation also sold good volumes and is left with only 0.35 million bales of cotton stocks.
Indian cotton balance sheet
CAI has reduced cotton crop by 400,000 bales to 35.60 million bales of 170 kg each (equivalent to 37.83 million running bales of 160 kg each) for its May estimates for season 2020-21. Its earlier estimate was 36.0 million bales of 170 kg each (38.20 million running bales).
Monsoon is developing well across India; there are some delays in a few cotton growing regions, but still there is no major concern. Monsoon has covered the entire Gujarat and Southern parts of Rajasthan till June 18. But since then it has not made further advancement. As of June 27, Saurashtra and Kutch are deficient by 21% whereas the Gujarat region is surplus by 9%. On the other hand, East Rajasthan is normal with just 1% surplus and West Rajasthan is surplus by 54%.
Eastern districts of Gujarat have been receiving on and off rain and thundershower activities. But most of the Saurashtra and Kutch are almost dry.
US cotton export sales for week ending June 17, 2021
Net sales of 74,700 RB for 2020/2021 were down 33% from the previous week and 48% from the prior 4-week average. Increases primarily for Pakistan (36,500 RB), China (14,000 RB, including decreases of 14,100 RB), Peru (10,200 RB), Vietnam (7,100 RB, including 1,400 RB switched from Japan), and Bangladesh (4,600 RB), were offset by reductions for Singapore (4,600 RB) and Japan (1,100 RB). For 2021/2022, net sales of 148,900 RB primarily for Pakistan (93,900 RB), Vietnam (26,300 RB), Peru (17,100 RB), Mexico (9,500 RB), and Guatemala (5,300 RB), were offset by reductions for China (7,900 RB).
Exports of 206,000 RB were down 32% from the previous week and 34% from the prior 4-week average.
(Vimal Verma is a cotton trader)