Indian cotton season 2019-20 ended with some good and bad experiences. Indian cotton crop year 2020-21 has begun from 1st October 2020. This start seems quite different from regular years in that the CCI is well prepared in the beginning of the season itself, to buy new crop at MSP in various states, unlike previous years. Ending stocks are huge and new crop predictions are very good, MCX volume is very dry, Forward sales in the market are almost nil, unlike previous years.
As per trade sources, all India daily arrivals reported were around 15000-20000 bales. Of these around 10000-12000 bales was of the new cotton. The pace of arrivals as per sources should have been higher but remains marginally impacted by the farmer protests in various states. Farmers in Karnataka had called for a strike in protest against government’s latest changes to decades old Essential Commodities Act.
Weather and sowing update
As per IMD the withdrawal of South west Monsoon has commenced from some parts of Rajasthan and Punjab. Cumulative rainfall so far was 9% above normal. The withdrawal of rainfall from north, northwest and parts of central regions could further boost the harvest operations. The pace of arrivals though might vary due to farmer agitation. India’s cotton area coverage is reported to be 13.037 million hectare against 12.767 million hectare last year i.e. increase in area coverage by 2.11%.
CCI activities will influence cotton prices
Coming weeks could be unpredictable with uncertain buying pace and policies of CCI for new arrivals of seed cotton. Fundamentally market should not trade higher but demand for quality cotton can support price for time being and CCI’s buying operations can also support prices. Apart from CCI, as of now there seems no other factor which can pull prices up as ICE also looks range bound for the time being. Export demand is stable to weaker from last couple of weeks. Domestic demand from mills is reported to be good enough to support local prices as yarn movement is picking up.
Also mills are worried about CCI’s MSP buying and selling policies for the months of October and November. If CCI starts procuring aggressively in the initial two months, prices can go up. However, if CCI does not buy cotton due to quality/moisture and other issues of new cotton, then prices can trade stable to lower in the market.
CCI is carrying enough cotton from 2019-20 season. Selling strategies for the cotton stocks will also influence open market cotton prices. It’s worth keeping a close watch on whether the CCI will come forward to protect farmers’ interests versus the industry’s interests. As of now only CCI’s aggressive buying at MSP could support sentiments and prices. Even so, despite being the cheapest in the world, Indian cotton could have to trade lower fundamentally.
Textile ministry latest estimates
In its official estimates for cotton crop and sowing, the Textile Ministry’s Committee on Cotton Production and Consumption has projected India’s cotton production at 35.7 million bales (each of 170 kg) for the year 2019-20, with a rise of about 2% in the yield at 453.82 kg per hectare as against 444.74 kg last year.
The newly constituted Committee, formed after the abolition of the Cotton Advisory Body (CAB), officially projected India’s closing stock for 2019-20 at 10.544 million bales following sharp dip in mills’ and small scale industries’ consumption.
Domestic demand in China is good enough but still exports are lagging and heavily tilted towards protective equipment (masks, protective clothing etc.).Chinese national holidays have started and the country will be closed for about one week. On 9th October onwards normal business will reopen, but in practice things will continue slow until weekend.
US cotton export sales for week ending Sept 24, 2020
Net sales of 233,800 RB for 2020/2021 were up noticeably from the previous week and up 7% from the prior 4-week average. Increases were primarily for Turkey (62,500 RB), China (55,700 RB), Vietnam (41,100 RB), Mexico (24,300 RB), and Indonesia (13,400 RB, including decreases of 4,300 RB). For 2021/2022, net sales of 20,600 RB were for Mexico (16,300 RB) and Indonesia (4,300 RB). Exports of 218,200 RB were down 23 percent from the previous week and 10% from the prior 4-week average. Exports were primarily to China (105,400 RB), Vietnam (49,400 RB), Indonesia (14,700 RB), Mexico (14,300 RB), and Pakistan (8,800 RB). Net sales of Pima totaling 19,500 RB were up 5% from the previous week, but down 4% from the prior 4-week average. Increases were primarily for India (7,700 RB, including decreases of 100 RB), China (3,900 RB), Bangladesh (2,200 RB), Peru (2,200 RB), and Hong Kong (1,500 RB).
Exports of 10,800 RB were down 17% from the previous week and 18% from the prior 4-week average. The primary destinations were India (3,600 RB), China (3,200 RB), El Salvador (1,800 RB), Pakistan (900 RB), and Turkey (700 RB).
(Vimal Verma is a cotton trader)