2020 would be remembered till decades for shaking up the world’s economy. Many developed and developing nations suffered badly due to the compulsive lockdowns. Industries suffered, millions of jobs were lost. As we ring in 2021, we hope for better things – effective vaccines, and healing economies.
The cotton economy too suffered due to the pandemic. On the bright side, from the fourth quarter of 2020, markets began improving, indexes rallied (Sensex crossed 47000), mills started buying good quantities of cotton, international demand picked up well, compared to the previous quarters when activity was all but absent.
Local mills are enjoying fairly good margins, they have bought cotton from open market as well as from CCI. With good demand for cotton yarn, mills are building their cotton inventory for 2-3 months, depending on their financial
capacity. From the last couple of weeks, ICE cotton is trading on bullish note and today (December 29), its March 2021 contract is ready to cross 77 cents per lbs. Some volatile trading sessions were witnessed as news of a new strain of Covid-19came in from Europe and other countries. The impact of this news seems to be settling for now, and again slowly ICE has started to move up, leaving behind range-bound Indian cotton prices. Indian cotton prices are continuing weaker in comparison to ICE cotton price, due to weaker export demand, reduced daily buying by CCI and local mills are buying only need based. December is considered to be a month of peak cotton arrivals, daily arrivals are ranging from 250,000 to 300,000+ bales a day.
Cotton in numbers
Recently all India daily cotton arrivals are reported around 250000-300,000 bales on daily basis. Gujarat’s contribution is 65,000-75,000 bales a day, cumulative all India arrival till this weekend crossed 15 million bales.
Exports are reported above 2.6 million bales while importsare reported at 400,000 bales. CCI has procured more than 7 million bales till now for 2020-21 crop at MSP.
Exports have been badly hit due to economic slowdown in major cotton importing countries like Bangladesh and Indonesia. Indian cotton remains one of the cheapest cottons in the world market. With the current pace of exports, exports would be around the same level as last year.
Currently, cotton is trading for its 29mm/75RD/3% trash/Gujarat origin with the range of INR 41500- INR 42000 per candy, during December 2020 Gujarat cotton traded for similar quality ranging from INR 40500 to INR 42500 per candy.
CCI put caps on daily cotton procurement
CCI has restricted daily seed cotton purchase target at the basis centres it has opened at various stations in the country.
In an official appeal to farmers, the CCI management requested the district administration and Agricultural Produce Market Committee (APMCs) to regulate kapas (raw cotton) arrivals in market yards in such a way that fair average quality (FAQ) grade of kapas brought by farmers can be sold, weighed and billed on the same day so that farmers need not stand in long queues and face difficulty in selling their produce.
Cotton Corporation of India has purchased around 7 million bales of cotton till now.
Last year, CCI bought 11.5 million bales, whereas this year market reported they are targeting to procure 12.5 million bales, of which about 60% or 7 million bales has been already sourced on MSP by end of this week.
Stocks and currency
Stocks recovered most of the losses, supporting the sentiment on the rupee. Into the year end, the duel between the market flows and RBI continue with spot USD-INR sandwiched between 73.60 and 74.10 till year end.The demand is pretty steady and the long-term trend to upside is still in place.US President Donald Trump on Sunday signed into law a US$2.3 trillion pandemic aid and spending package, restoring unemployment benefits to millions of Americans and averting a federal government shutdown in a crisis of his own making.
US exports sales for week ending December 17
Net sales of 416,700 RB for 2020/2021 were down 1% from the previous week, but up 14% from the prior 4-week average. Increases primarily for China (185,600 RB, including decreases of 13,500 RB), Vietnam (108,400 RB), Pakistan (52,000 RB), El Salvador (17,200 RB), and Turkey (14,800 RB), were offset by reductions primarily for Mexico (10,500 RB).
For 2021/2022, net sales of 67,100 RB were primarily for El Salvador (21,600 RB), Honduras (15,000 RB), China (13,200 RB), and Turkey (9,200 RB). Exports of 281,200 RB were up 12% from the previous week and 20% from the prior 4-week average. Exports were primarily to China (156,200 RB), Pakistan (30,900 RB), Vietnam (24,000 RB), Mexico (16,800 RB), and Turkey (14,300 RB). Net sales of Pima totalling 30,900 RB were up noticeably from the previous week and from the prior 4-week average.
Increases were primarily for India (9,200 RB), China (8,700 RB), Pakistan (3,700 RB), Egypt (2,700 RB), and Vietnam (2,600 RB).
Exports of 13,900 RB were down 40% from the previous week and 44% from the prior 4-week average. The destinations were primarily to India (5,600 RB), China (3,700 RB), Peru (2,000 RB), Vietnam (900 RB), and El Salvador (600 RB).
In current scenario farmers can continue to bring cotton into the market. Pressure on prices can be seen for the shorter term. In the medium term, local flat prices can get support if export demand picks up or ICE continuesto move upwards towards 80s.Other factors impacting prices include selling and sourcing policies of CCI. At any time, CCI which is carrying huge stocks and still building more, can be a game changer for the cotton Industry.
Best Wishes ForNew Year 2021!
(Vimal Verma is a cotton trader)