The 2021 cotton market has started with a bullish trend. ICE Cotton futures for its March contract is already trading at USC 82+ per lbs after bullish WASDE report released last evening (January 12). Indian cotton is trying to follow the same bullish trend, but failed somewhere due to good arrival numbers and CCI’s recent buying limit for its daily purchase.
Daily cotton arrivals remain high
All India daily cotton arrival is reported ranging from 240000-270000 bales a day in the last 15 days, which have slowed down to 200000-250000 bales a day now. Gujarat is contributing 55000-60000 bales a day in daily arrivals. Till date all India cumulative arrival for season 2020-21 is reported approximately at 20 million bales (within 3.5 months) which is already more than 50% of estimated crop number (still 8 months to go for this season).
All India consumption is estimated at around 10 million bales till date with export numbers of 2.5-2.8 million bales. Farmers are feeling secure as seed cotton prices are trading above MSP and good buying has been reported from private ginning factories above MSP price.
Good demand for Indian cotton yarn
Spinners are enjoying handsome margins in yarn sales. India’s cotton textile industry is experiencing a boom after more than a decade. The last two years were bad for the sector with little expansion. The sharp rise in cotton yarn prices in the last few weeks is because of dried-up inventories as supplies have failed to match demand and spinning mills resumed operations late across the country. Cotton fibre price has not risen significantly but cotton yarn has because of high domestic and export demand. Huge orders are coming in from Bangladesh and Vietnam.
Current Indian cotton prices are trading around Rs 43500 for 29mm/75RD for its Gujarat cotton, which are range bound from a week ago. Higher prices is the major reason for ginners slowing down their cotton sales; lower quality cotton arrivals have also been reported in the market. Ginners are hesitating to sell standard quality of 75RD as of now, because with higher prices farmers are trying to bring lower quality seed cotton in the market and also movement of good quality seed cotton from other states to Gujarat has been slowed down. Better cottonseed prices remained supportive to ginners.
Going ahead, price gap would be widening between good quality cotton and lower grade. Indian prices can also feel more pressure due to quality concerns going on in India.
CAI’s latest Crop estimates for season 2020-21
The Cotton Association of India (CAI) recently increased its cotton crop estimate for the 2020-21 cotton season, by 250000 bales to 35.85 million bales from its previous estimate of 35.60 million bales made during early December. Total cotton supply estimated by the CAI between October and December last year is 32.74 million bales, which comprised arrivals of 19.79 million bales between October and December and import of cotton estimated at 450000 bales up to December 31. It also comprised opening stock as on October 1, in which the committee has made a one-time increase from 10.75 million bales to 12.5 million bales. (each bale of 170 Kg.)
Further, CAI estimated cotton consumption during October to December last year at 8.25 million bales, while export shipments of cotton up to December 31 were estimated at 2 million bales. The CAI Crop Committee has estimated the total cotton supply till the end of the CY 2020-21 at 49.75 million bales. This consists of the revised opening stock of 12.5 million at the beginning of the season on October 1 last year, crop for the season estimated at 35.85 million balesand imports estimated at 1.4 million bales.
The imports estimated for CY 2020-21 are lower by 150000 bales estimated for the previous crop year. Domestic consumption is now estimated at 33 million, i.e. at the same level as estimated previously. There is an increase of 8 million bales in the cotton consumption for the CY 2020-21 from previous year’s consumption estimate of 250 lakh bales. The consumption is estimated to reach its normal level this year after the disruption and labour shortage caused on account of the lockdown imposed in the country. CAI has estimated exports for the season at 5.4 million bales. The carry-over stock at the end of CY 2020-21 is estimated at 11.35 million bales.
CCI MSP Procurement
With daily new purchase limit by CCI, CCI slowed down its pace to buy cotton on daily basis and procured seed cotton equivalent to 8.35 million bales on all India basis till January 11, 2021. CCI procured approximately 110000 bales on January 10 and 11, 2021.
MCX is trading on bullish note with ICE and targeting Rs 21500 for its Jan 2021 contract. MCX cotton bales stock position as on 11/01/2021:
- Total utilised capacity: 115,100 bales
- Stocks eligible for exchange delivery : 90,825 bales
- Quantity in process (QC awaited-in bales): 22,275 bales
- Rejected stocks: 2,000 bales (Based on Market info)
The USDA’s Jan 2021 WASDE Report (Price Impact: Bullish)
The report highlighted a few important changes including a decrease to the US production by 1 million bales so that the total production estimate now rests at 14.95 million bales. The US exports were raised by a quarter of a million bales to 15.25 million and ending stocks were lowered as well. China increased imports by 0.5 million bales and the global ending stocks were lowered by over a million bales to 96.32 million. Furthermore, Pakistan also lowered their production by another 200000 bales. The US 2020/21 cotton outlook shows higher exports, and lower production and ending stocks this month. Production is lowered nearly 1 million bales to 15 million, led by a 500,000-bale decline in Texas.
US mill use is reduced 100,000 bales, but exports are raised 250,000 bales as rebounding world demand helps sustain a strong export pace. With lower production and higher demand, 2020/21 US ending stocks are 1.1 million bales lower relative to last month, at 4.6 million bales or 26% of use.
The upland season average price received by US farmers is projected 3 cents higher this month, at 68 cents per pound.The largest changes in the global 2020/21 cotton outlook this month are lower production and ending stocks, led by changes in the United States. World production is forecast more than 1 million bales lower, with non-US reductions including Pakistan, Mali, and Argentina.
Outside the United States, Pakistan’s 200,000-bale decline is the largest change, with smaller upward revisions for Greece, Australia, and Turkey. Projected world consumption in 2020/21 is 100,000 bales higher this month, as a 500,000-bale increase for China and a 200,000 bale increase for Turkey are partly offset by reductions for Indonesia, Vietnam, the United States, and some smaller countries. Similarly, a 500,000-bale increase in China’s projected imports is partly offset by a 200,000-bale decline for Indonesia. World trade is projected 350,000 bales higher, with Australia and Mexico exports up by smaller amounts than the United States, and lower exports projected for Mali. World ending stocks in 2020/21 are 1.2 million bales lower this month, at 96.3 million bales, 3 million bales lower than the year before.
US Export Sales For Week Ending December 31, 2020
Net sales of 153,100 RB for 2020/2021 were down 47% from the previous week and 60% from the prior 4-week average. Increases were primarily for Pakistan (69,500 RB), China (36,700 RB, including 6,600 RB switched from Vietnam, 2,900 RB switched from Hong Kong, and decreases of 14,300 RB), Turkey (24,900 RB), South Korea (6,100 RB), and Japan (5,500 RB), were offset by reductions primarily for Bangladesh (11,900 RB). Exports of 270,000 RB were down 2% from the previous week and 4% from the prior 4-week average.
Exports were primarily to China (167,600 RB), Pakistan (28,500 RB), Vietnam (23,600 RB), Bangladesh (9,200 RB), and Indonesia (8,700 RB). Net sales of Pima totaling 6,200 RB were down 59% from the previous week and 63% from the prior 4-week average. Increases were primarily for Vietnam (2,100 RB), India (2,100 RB, including decreases of 1,400 RB), and Austria (1,300 RB).
Exports of 12,400 RB were down 20% from the previous week and 37% from the prior 4-week average. The destinations were primarily to China (5,300 RB), Vietnam (2,400 RB), India (1,600 RB), Turkey (1,300 RB), and Pakistan (900 RB).
(Vimal Verma is a cotton trader)