Mill Demand, CCI MSP Ops Support Cotton Prices

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Indian cotton prices are continuing the uptrend with good buying support from local mills and exporters despite daily arrivals crossing 200,000 bales per day. Arrivals are reported comparatively higher than last year.

In North India, as the third and final phase of harvesting of cotton balls is gaining momentum in the semi-arid region of Punjab, the arrival in mandis this season is already nearly double when compared with the corresponding period last season. This season, CCI started MSP buying operations from northern states of India; and gradually became active in other parts of India, thus giving good support to the market.

ICE December is trading range bound with good buying reported. Some cotton boll diseases were reported from scattered areas across India, but nothing serious has been observed or reported by any of the government agencies. If found to be serious, in coming days cotton yield can be impacted or can be reason for early uproot of cotton plants in affected areas.

We need to watch closely such developments for projecting area wise crop numbers and cotton quality. Demand of yarn has been reportedly slowed down recently, but still mills are enjoying cheapest Indian cotton with decent margins.

A second wave of Covid-19 is being feared. Already coronavirus cases are increasing across the country. This has not had any impact on cotton market. But many corporate have again started WFH, and this could slow down the market, if it happens on a larger scale.

Recently, CCI started to offer new crop in the market. Selling of current crop within few days of procurement can be good or bad for consumer. If CCI offers this cotton in volume and at a price higher than the market price, then these prices will suport open market cotton prices, thus affecting mills’ margins too. If CCI offers the cotton at a lower price (which does not seem practical as per CCI’s past sales activities), then cotton prices in the open market will be under pressure. Thus, CCI’s sales policy is very subjective.

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Cotton prices rose over 1% at the start of the week, after the first successful clinical trial of a Covid-19 vaccine lifted sentiment and boosted optimism about demand for cotton, a day after of federal supply demand estimate report. The cotton contract for December rose 1.28 cents, or 1.9%, to 69.90 cents and is currently trading above 70 cents.

CAI’s first estimate for India 2020-21
Recently Cotton Association of India projected exports to hit 6 million bales, about 1 million bales higher than the export estimate of 50 lakh bales in the previous crop year.

India’s cotton crop for the current year 2020-21 is expected to be lower by about 400,000 bales (each of 170 kg) at 35.60 million bales as against 36 million bales last year. CAI mentioned major reduction has been done in crop numbers due to damage reported to the crop in some pockets due to the excess rains and pink bollworm infestation.

Cotton imports are likely at 1.40 million bales for the season, lower by 150,000 bales from 1.55 million bales reported last year. The CAI has estimated annual cotton consumption at 33 million bales, up about 8 million bales compared 25 million bales of the previous cotton season. So far, by the month of October 30, 2020, total cotton arrivals were recorded at 2.72 million bales.

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The CAI has estimated the closing stock by the end of the cotton season at 8.75 million bales of 170 kgs, down by 2 million bales last year. However, last year was an exceptional year with closing stocks at record high levels of 10.75 million bales.

USDA WASDE Cotton report
In month November 2020/21, US cotton estimates are virtually unchanged from October. The US production forecast is marginally higher, at 17.1 million bales, while domestic mill use and exports are unchanged. US ending stocks remain at 7.2 million bales and, at 42% of use, would be the highest stocks-to-use ratio since 2007/08. The marketing-year average price received by upland producers is forecast at 64 cents per pound, 5% (3 cents) above the October forecast, and 7% higher than 2019/20’s price of 59.6 cents.

World 2020/21 cotton production is projected marginally lower than in October, but with slightly higher beginning stocks and slightly lower use, global ending stocks are up 300,000 bales from the previous month. Global 2020/21 beginning stocks are forecast 378,000 bales higher this month, largely reflecting an increase in Brazil’s 2019/20 crop. Production changes for 2020/21 include an 800,000-bale reduction for Pakistan, a 400,000-bale increase for Australia, and a 250,000-bale increase for China. Smaller, offsetting changes occurred in estimates for Central Asia, and the global total is 160,000 bales lower than in October. World cotton use is also projected 160,000 bales lower this month, largely reflecting expected lower mill consumption in Pakistan. World trade is projected 605,000 bales higher this month as Pakistan’s imports increase in response to the smaller crop, with Brazil and Australia export estimates higher as well.

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US cotton export sales for week ending 10/29/2020
Net sales of 115,600 RB for 2020/2021 were down 60% from the previous week and 42% from the prior 4-week average. Increases primarily for China (47,300 RB, including decreases of 38,300 RB), Pakistan (25,200 RB), Turkey (22,500 RB, including decreases of 22,100 RB), South Korea (16,600 RB), and Guatemala (15,900 RB, including 400 RB switched from El Salvador), were offset by reductions primarily for Bangladesh (44,100 RB) and Mexico (10,100 RB).

For 2021/2022, net sales of 55,700 RB were primarily for Guatemala (26,000 RB), El Salvador (14,100 RB), and China (8,800 RB). Exports of 270,000 RB were up 18% from the previous week and 43% from the prior 4-week average. Exports were primarily to China (127,400 RB), Vietnam (41,700 RB), Pakistan (27,800 RB), Bangladesh (20,200 RB), and Mexico (17,800 RB).

(Vimal Verma is a cotton trader)

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