Lockdown Extended; Cotton Market Remains Sluggish

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The Centre has extended the lockdown till May 3, 2020.
During the last 20 days of the lockdown, all India daily cotton arrivals were reported almost zero. All agriculture market yards, Cotton Corporation of India purchase centres, ginning and spinning factories were closed completely. Only farmers were allowed to work in their farms, and production and movement of essential commodities were allowed.

Some ginning factories start operations in Gujarat
In view of the good results of lockdown and lower than expected number of positive cases of COVID -19 in the last few days, some state governments allowed certain industries to resume operations in their states, Last week Gujarat government also gave permission to operate ginning and pressing factories within special lockdown norms given by government and local administration. Along with these, most required transportation also got permission to carry essential and non-essential goods.

Scarce demand, price disparity limits operations
Farmers are not willing to sell cotton at prices lower than MSP. CCI had stopped procurement in various centres. So farmers were forced to sell cotton below MSP to ginning factories. However, this business was very limited.

Due to higher seed cotton prices and lower cotton lint (cotton bale) prices (appx. 36300 per candy – S-6/29mm good grade cotton) ginners are in disparity, thus only selective ginners are operating in Gujarat with very limited capacity. Cotton/cotton yarn demand and non-availability of labour are also big challenges for industry to operate efficiently.

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Fortunately, cotton procurement by CCI is set to start as states work out norms to be followed in order to control the flow of farmers in the wholesale markets. This would come as a relief to the cotton growers as around 25% of the produce still remains with the farmers. Maharashtra, Punjab and Telangana have issued guidelines to allow procurement operations of kapas. Gujarat is also expected to issue a guideline soon.

Around three of the mandis in Maharashtra are expected to resume their kapas operations from next week.

This will bring some stability in cotton prices. However, until retail sales do not improve, we cannot expect any considerable activity in the entire textile value chain. Dull retail sales can further put pressure on cotton prices in India and globally. Good yarn demand is key for the Indian textile industry.

Last week Indian equities were trading upwards. MCX cotton tried to follow the trend, and recovered from its recent low and trading range-bound from last two-three sessions due to lower trading activities in the physical market. Indian cotton prices can show some volatility depending on how efficiently or non-efficiently the industry will pick up and run during the extended lockdown.

Weaker Indian rupee is trading in narrow range between 75.63 to 76.29 against USD.

The India Meteorological Department’s first weather forecast for the season said that India will likely have a normal monsoon, with a chance of `above normal’ rain in August and September. This brings some cheer to farmers and the industry.

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China is improving
Wuhan ended its 76-day lock-down last Wednesday morning, allowing residents to again travel in and out of the city without special authorization. But they have to mandatorily use a smartphone app powered by a mix of data-tracking and government surveillance showing they are healthy and have not been in recent contact with anyone confirmed to have the virus.

In China, life coming back on track can be a good reason to support many industries worldwide including cotton.

USDA weekly sales & WASDE on 09.04.2020
Net sales reductions of 5,200 RB for 2019/2020 – a marketing-year low – were down noticeably from the previous week and from the prior 4-week average.  Sales increased to Bangladesh (90,800 RB, including decreases of 11,700 RB), Vietnam (38,100 RB, including 4,500 RB switched from Indonesia, 3,800 RB switched from South Korea, 400 RB switched from Taiwan, and decreases of 7,200 RB).

For 2020/2021, net sales of 107,400 RB were primarily for Indonesia (23,100 RB), China (21,100 RB), Turkey (17,200 RB).

Exports of 486,600 RB–a marketing-year high–were up 21% from the previous week and 23% from the prior 4-week average. Exports were primarily to Vietnam (116,000 RB), Turkey (88,400 RB), Pakistan (72,700 RB), China (64,600 RB), and Indonesia (52,400 RB).

WASDE report updated cotton exports to 15 million bales for 2019/20, which was a 1.5 million bale cut from the March forecast. USDA also revised the world cotton exports down 2.96 million bales to 40.64 million. Global ending stocks for cotton were 91.26 million bales, which was a 7.86 million bale increase from the March forecast. WASDE forecasted global domestic use for cotton down by 6.4% to 110.58 million bales, India was the largest drop of 10.2% from the March estimate. In short WASDE can be seen quite bearish. But this did not influence ICE immediately.

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On 13th April, ICE cotton futures dropped as much as 3.7% from a three-week peak on fears of a drag on global consumption. Earlier in the session, ICE May contract hit the highest since March 24, at 54.55 cents per lb. This move seems to be a delayed reaction to latest WASDE and export USDA weekly sales report.

The United States Department of Agriculture (USDA) cut estimates for global consumption to 110.58 million bales in its monthly World Agriculture Supply and Demand Estimates (WASDE) report released on Thursday.

(Vimal Verma is a Cotton Trader)

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