Huge Indian Cotton Surplus Of 2019-20 With Sound Predictions For 2020-21


Indian cotton traded range bound with continuous slowing down of daily arrivals and steady demand from mills and exporters. There is huge cotton surplus in India, majority with CCI, and continuedoptimism for new crop numbers for 2020-21. All India daily cotton arrivals are in the range of 20000-25000 bales per day and these arrivals are with quality variation-lower colour grade and staple length variation is very common due to mixing of range of cotton.

The new cotton season will start in just about 60 days. Farmers are busy in sowing andginners are shutting down ginning operations to prepare for the next season soon. As on date, current scenario for the cotton crop 2020-21 is excellent, with some area reduction expected, but that can be compensated by better yield if weather remains favorable enough during the coming months.

Unlock 3 has been announced by the government but yet spinning mills are not able to operate at full capacity.CCIexpects gradual pick-up in demand as the lockdown eases. But mills are in no hurry to build stock, preferring to run on hand-to-mouth basis due to bulk cotton available with CCI and also expecting timely arrival of new crop due to early/timely sowing andfavourable monsoon despite of higher MSP next year.

It would be really interesting to see how international cotton demand turns out for Indian cotton, as this can lend a lot of support to Indian cotton prices. With Higher MSP, CCI should again be ready to buy good amount of cotton if MSP operations are executed on traditional basis. On the other hand, if international demand for Indian cotton does not improve significantly, it would be a big challenge for CCI to sell 2018-19/2019-20 crop and buy 2020-21 crop at MSP.

CCI records single day highest sale in five years
Recently, Cotton Corporation of India sold approximately 700,000 bales of cotton, its highest single day sale in five years, as it offered discounts on bulk orders.CCI procured around 10.4 million bales of cotton of 170 kgs each – amounting to one-third of India’s cotton production in 2019-20. Based on the MSP, the cost of cotton procured by CCI is about Rs 45,000 per candy, while in the open market the similar cotton is commanding a price of about Rs 34,500/candy.

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A memorandum of understanding is being worked out to export 1.5-2 million bales of cotton to Bangladesh while CCI is planning to set up its own warehouse in Vietnam to boost cotton exports.

Weather and sowing progress
Moderate rainfall activity continued over cotton growing regions of Maharashtra, Northwest India and South Indian states while light scattered rains were reported in cotton growing regions of Southern Rajasthan and Gujarat. Rains in cotton growing regions will be beneficial for better crop development.

All India cotton sowing till 24thof July was 12.02 million hectares against 10.37 million hectares last year at the same time. Gujarat cotton sowing is exceptionally lagging compared to other states.

CAI revised cotton crop estimates upwards for 2019-20
The crop estimates for 2019-20 season have been increased to 33.55 million bales of 170 kg each compared to its previous estimate of 33.00 million bales made during the last month.

The cotton crop estimate finalised by the CAI for 2018-19 was 31.20million bales of 170 kgs each. Total estimated cotton supply till end of the cotton season2018-19is 38.25 million bales of 170 kgs each which consists of the opening stock of 3.2 million bales, crop for the season estimated at 33.55 million bales and imports estimated by CAI at 1.50 million bales. Imports are estimated to be lower by 1.7 million bales compared to the previous year’s estimate of 3.2 million bales.

According to the association, the domestic consumption for the entire crop yearhas been estimated at 28.0 million bales, i.e. at the same level as estimated in the last month. The consumption for the crop year 2019-20 was earlier estimated by the CAI at 33.1 million bales but the same was later reduced by 5.1 million bales due to the lower consumption of cotton on account of disruptions caused by the Covid-19 pandemic in the country.

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The CAI has retained its export estimate for the season at the same level as estimated in the previous month i.e. at 4.7 million bales against 4.2 million bales estimated earlier.

The increase of 0.50 million bales in the export estimate than estimated in the previous year was made looking to the favourable conditions existing for exports of cotton from India. The carryover stock estimated at the end of the season is 5.55 million bales.

The estimate of cotton imports into India has been maintained by CAI at the same level as estimated in the previous month i.e. at 1.5 million bales. This import estimate is lower by 1.7 million bales compared to that estimated for the last year. The Indian cotton arrivals during the months of October 2019 to June 2020 are estimated at 32.70 million bales of 170 kgs each. The closing stock as on September 30, 2020 is estimated at 5.55 million bales of 170 kgs each.

US scenario
US weather concerns kept up the support for ICE cotton prices, ICE is range bound volatile due to weather concerns. ICE December contract is trading with strong technical support at 59 cents level and key resistance at 65 cents level.

Recently several bearish economic reports were released in the US. The much anticipated second quarter GDP results was negative 32.9% for the country, the worst decline on record. The previous record decline in quarterly contraction, a 10% drop, occurred in 1958 during the Eisenhower administration. Consumer spending was negative 34% as travel all but froze and shutdown orders forced restaurants, bars, entertainment venues and other retail establishments to close. The weekly jobless claims showed another 1.43 million Americans filing for unemployment which marks 19 weeks in a row where jobless claims have been higher than 1 million people. Continuing claims rose 867,000 to 17.018 million people.

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USDA weekly export sales
Net sales of 118,700 RB for 2019/2020 were up noticeably from the previous week and from the prior 4-week average.  Increases primarily for Vietnam (76,500 RB, including 2,200 RB switched from China and 800 RB switched from South Korea), China (22,100 RB), Bangladesh (17,600 RB), Turkey (4,000 RB), and Brazil (3,900 RB, switched from Ecuador), were offset by reductions for Ecuador (3,900 RB), Pakistan (2,500 RB), Mexico (2,100 RB), the Philippines (1,900 RB), and India (1,800 RB).

For 2020/2021, net sales of 9,500 RB primarily for Vietnam (3,000 RB), Pakistan (2,600 RB), Turkey (1,500 RB), Thailand (1,400 RB), and Bangladesh (1,100 RB), were offset by reductions for Japan (400 RB).  Exports of 320,800 RB were up 18 percent from the previous week and 8 percent from the prior 4-week average.  Exports were primarily to China (105,100 RB), Vietnam (93,100 RB), Turkey (41,700 RB), Bangladesh (25,400 RB), and Pakistan (18,500 RB).

Huge surplus is already in hand now, but an optimistic prediction for new crop is dependent on the weather. We will be closely watching weather developments and crop progress to understand the coming cotton crop scenario. For early sowing in India,small amount of new crop arrivals are expected to start in September 2020 as well.

(Vimal Verma is a cotton trader)


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