Moderate Monsoon Progress Vs Cotton Production Estimates

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Vimal Verma is a cotton trader

For the second fortnight in a row, Indian cotton prices traded on weaker note which is expected to continue. New crop arrivals in northern states are picking up pace. Daily bargains are reported for immediate deliveries and for November-December 2021 deliveries. Immediate delivery bargains are mostly confirmed with 10% moisture and 4% trash condition with no condition of staple and other parameters due to quite unpredictable cotton quality for specific parameters from first picking.

Meanwhile, ICE cotton reported volatility with (+/-)4/5 USC for its December contract. Despite upside movement in ICE, Indian cotton prices traded steady to weaker due to low demand from mills and export markets. Spinning mills are in wait-and-watch mode to buy cotton for nearby deliveries specifically from new crop. Most of the mills are carrying cotton for the next 45-75 days comfortably and some of the bigger mills reportedly have even higher cotton inventories, so they will not be buying cotton soon in the current price situation.

There are reports of drought situation in Gujarat with approximately 58% shortfall in rain, but at the same time market feedback for standing crop is not that bad. Markets expect slight change in production numbers if this rain deficit continues, because time to time some scattered spells of light rain are helping plants to stand healthy. Despite this Gujarat drought news, market prices are not getting support. New crop forward buying has been reported, at flat price of Rs 53,500-53,800 per candy for November-December 2021 deliveries for 29mm/3.7 Mic/9%moisture condition.

Monsoon development
With almost completed sowing, upcoming rainfall and monsoon development will play a major role to decide crop numbers and cotton quality for upcoming season. Cotton area is almost finalised now, which is slightly lower in few regions and marginally higher in few regions, thus keeping the area almost at par with last year.

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Western sections of Gujarat, Rajasthan and Punjab can see limited rainfall during the coming week. The ground can remain critically dry and crop development conditions can be poor. Concerns for production losses can remain high in unirrigated areas of western Rajasthan and northwestern Gujarat due to the lack of rain over much of the growing season. As per a forecast by the Indian Meteorological Department (IMD), there are few chances of good rainfall till the end of August. Even in South Gujarat, which generally records heavy rainfall, deficiency has been recorded in the remainder of the state. Sixty percent or more of the deficit has been seen in five districts, including Gandhinagar, Ahmedabad, Aravalli, Surendranagar, and Banaskantha.

A large portion of India is predicted to have an opportunity for monsoonal rain September 3 – 9. However, western sections of Gujarat and Rajasthan will not receive enough rain to significantly improve the moisture profile.

Sowing progress
Cotton sowing is almost completed across India for the coming 2021-22 season. Cotton sowing across India has reached 11.62 million hectares compared to the previous season sowing at 11.64 million hectares during the same time.

Global cotton stock for 2021-22, has been revised lower by 50,000 bales. In the other estimates for 2021-22, largely offsetting changes in production and consumption do little to offset lower estimated beginning stocks. Exports are 200,000 bales lower than in July, and ending stocks are 300,000 bales lower, equating to 17% of expected use, the same as in 2020/21. Lower production is reducing this month’s 2021-22 global ending stocks forecast slightly.

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Price outlook
The Centre has fixed an MSP for medium staple cotton at Rs 5,716 per quintal for the 2021-22 season, higher than the previous year’s Rs 5,515. For the long-staple cotton, the MSP for 2021-22 has been fixed at Rs 6,025 per quintal, against Rs 5,825 in the previous year. With higher MSP, cotton prices are expected to have good support in the new season, but same time seed price and type of demand from mills and export market can also play a vital role in price discovery.

As per current scenario, market is estimating crop production ranging from 34 million bales to 36.50 million bales depending on poor rain conditions to better weather conditions ahead. Farmers are very much optimistic of getting better prices for seed cotton in 2021-22 season. CCI has been reducing its floor prices to encourage sales, but no major sales have been reported, further indication of weak demand in the market.

Recently MCX August contract prices showed good recovery from the previous lower levels, but same time October contract (New Crop 2021-22 season/first contract) traded range bound with pressure in price just opposite August contract. ICE cotton futures ended lower across the futures roll. Weekly exports data released by USDA showed sale of 245,100 running bales. While overall a good demand, the top five buyers did not feature China.

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US cotton export sales for week ending August5, 2021
Net sales of 245,100 RB for 2021/2022 were primarily for El Salvador (67,100 RB), Turkey (61,100 RB), Pakistan (35,000 RB), Honduras (26,500 RB), and Vietnam (14,900 RB, including 5,200 RB switched from China, 300 RB switched from Japan, and decreases of 1,100 RB).  For 2021/2022, net sales of 67,900 RB were primarily for El Salvador (48,000 RB) and Honduras (18,900 RB).  Exports of 201,700 RB were primarily to Pakistan (42,700 RB), Turkey (29,700 RB), Vietnam (27,200 RB), China (26,000 RB), and Mexico (20,900 RB).  Net sales of Pima totaling 14,300 RB were primarily for India (7,600 RB), China (2,200 RB), Turkey (1,700 RB), Peru (1,400 RB), and Thailand (1,000 RB).  Exports of 8,000 RB were primarily to China (1,800 RB), Peru (1,500 RB), Honduras (1,400 RB), India (1,200 RB), and Bangladesh (600 RB).

(Vimal Verma is a cotton trader)

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