Indian cotton is trading in very narrow range, the market is mired in lot of uncertainties of price movement in the longer term. This year nobody seems in a hurry to start forward trading in the new crop. In normal times, from July onward traders become active and start to sell/buy new crop for forward deliveries. But this year no major forward business has been reported.
Good monsoons are good news for cotton crop
Monsoon played a vital role in timely sowing of cotton and its growth. Cotton crop is in vegetative phase and is reported excellent across India. In northern part of India (Rajasthan), new seed cotton arrival has been reported in limited quantity.
The weather is expected to remain favourable for cotton. Some cotton growing regions received heavy rainfall last week, some waterlogging was reported in Northern India, but no crop damage has been reported. Good monsoons are expected in Gujarat and Maharashtra. Standing crop is reported in excellent condition as of now.
As on 14th of August 2020, all India cotton sowing was reported at around 12.55 million hectares against 12.16 million hectares last year at the same time (up by 3.2%). Out of which, Maharashtra contributed 4.15 million hectare followed by Gujarat at 2.27 million hectares. Gujarat and Maharashtra are still lagging in sowing area compared to last year. Telangana’s area under cotton rose to 2.35 million hectare (36.10% up from last year) followed by Punjab at 0.5 million hectare (25% up from last year). All India final sowing can be +/-2% from last year. Better yield expectation can push crop numbers higher for 2020-21.
All India daily arrivals continue to slow down and recently reported at around 15,000 bales on daily basis. According to market sources, all India total arrival till 10th August already crossed 36 million bales.
Currently Indian cotton is cheapest in the world, traders have received good export inquiries from Bangladesh and China. Next season with higher MSP everybody is expecting higher price of cotton bales than in this season, and currently yarn movement is also reported good. June and July export numbers of yarn were good enough after the lockdown. Still, mills are running under capacity due to finance and labour issue.
CCI cotton sales
Cotton Corporation of India is selling its cotton aggressively, good buying is reported from merchants and traders. The bulk discount scheme ended on 15th August 2020. CCI can extend the same or can make it even more attractive for liquidating its stock before entering into the new season. In last 15-20 days, CCI and Mahafed sold over 3.7 million bales to traders, spinning mills, exporters and merchants. Due to bulk discounting, small mills are not in a position to grasp this benefit directly from CCI, so these mills are buying through traders.
There is very limited volume trading on MCX Cotton. August is the last contract of 2019-20 season trading range bound around Rs 16400 level. New cotton crop contracts(October- November – December-20) are also on exchange but trade participation is very low so there is almost no volume in new crop trade. Market looks very uncertain so most of the traders want to take a short term view rather than taking a call on long term/new crop easily.
Textile Ministry goes lean
The Union Textile Ministry has abolished five advisory boards. The Ministry wound up the All-India Handloom Board on July 27, the Cotton Advisory Board on August 3, the All-India Powerloom Board and the Jute Advisory Board on August 4. The notifications said boards were abolished in the interest of “leaner government machinery and the need for systematic rationalisation of government bodies”.
The Ministry also withdrew its officers from the textile research associations (TRAs), after converting them into “approved bodies for conducting testing, research and developmental activities” related to the sector, as opposed to affiliated bodies, according to an August 6 notification.
WASDE cotton report -August 2020: Higher supplies andproduction, lower consumption
WASDE report gave higher beginning stocks, higher production and higher ending stocks, and a lowered consumption. Production for the 2020 crop is raised 3% to 18.1 million bales, despite of weather concern in Texas where around 20% crop is reported poor.US yield is projected at a record 938 pounds/acre, 14% higher than in 2019.
Beginning stocks are raised 100,000 bales as lower than expected 2019/20 US mill use offsets an upward revision in exports. Expected 2020/21 mill use is reduced 100,000 bales, while ending stocks are 800,000 bales higher. The season-average price for upland cotton is forecast at 59 cents per pound, unchanged from the previous month. This month’s 2020/21 world cotton outlook includes higher production, and ending stocks, but lower beginning stocks, consumption and trade.
World production is 1.3 million bales higher as lower production in Mali and Greece is more than offset by increases for India, the United States, and Australia. Expected 2020/21 world consumption is 1.2 million bales lower this month, with declines in India, China, Pakistan, Brazil, and Indonesia offsetting gains for Bangladesh and Turkey. Imports are projected lower in Pakistan, Indonesia, and India, and higher in Bangladesh, Turkey, and Malaysia.
This month, 2020/21 world ending stocks are projected 2.1 million bales higher than the previous month and 4.4 million bales higher than in 2019/20.
US cotton export sales for week ending 8/6/2020
Net sales for 2020/2021, which began August 1, totaled 6,900 running bales. A total of 2,883,200 RB in sales were carried over from the 2019/2020 marketing year, which ended July 31. Exports for the period ending July 31 of 43,600 RB brought accumulated exports to 14,174,500 Running bales, up 8 percent from the prior years’ total of 13,158,900 RB. The destinations were primarily China (19,500 RB), Vietnam (13,800 RB) and Bangladesh (2,300 RB). Exports for August 1 – 6 totaled 278,600 RB, with China (157,100 RB), Vietnam (56,300 RB), Turkey (13,700 RB), Pakistan (11,700 RB), and Bangladesh (9,600 RB) being the primary destinations.
Exports for Own Account: For 2019/2020, decreases were reported for 2,300 RB China. For 2020/2021 exports for own account total of 17,300 RB were carried over from the 2019/2020 marketing year, which ended July 31. Exports for own account totaling 4,000 RB to Vietnam (2,600 RB) and Bangladesh (1,400 MT) were applied to new or outstanding sales. For 2020/2021, the outstanding balance of 32,700 RB including carryover is for China (24,300 RB), Indonesia (3,900 RB), Malaysia (2,600 RB), Bangladesh (1,000 RB), and Vietnam (900 RB).
(Vimal Verma is a cotton trader)