Cotton Prices Soar To Record High In India On Global Trends

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Domestic cotton prices have soared to a record high of Rs 63,000 per candy (356 kg) as the global market has surged on low production, rising demand and supply constraints. On the Intercontinental Exchange (ICE), New York, cotton prices have gained a tad over 50% year-on-year rising to 108.67 cents a pound (Rs 66,025 a candy).

“Quality cotton in the domestic market costs about Rs 65,000,” said PK Agarwal, Chairman and Managing Director, Cotton Corporation of India (CCI).

Ruling above MSP
Currently, raw cotton prices in various markets across the country are ruling above Rs 7,000 a quintal against the MSP of Rs 5,726 fixed for this year. Prices much above MSP means the CCI will not need to intervene this year, according to Agarwal. “The prices are good for farmers where private traders and millers are ensuring good remuneration for cotton,” the CCI CMD said.

“Prices are moving up since the cotton balance sheet is tight and ending stocks are lower. Except China, no other country seems to have ample stocks,” said Anand Poppat, a Rajkot-based trader of raw cotton, waste and yarn.

With the quality of the cotton crop reported to be good, he expects Indian offers to soon be at par with global rates. “Indian cotton prices will be near international rates,” said CCI’s Agarwal.

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Post-Diwali scenario
Southern India Mills Association (SIMA) Secretary-General K Selvaraj said post-Diwali prices might decline in view of higher arrivals. “Arrivals will flood markets during December-January pushing down prices. But prices are likely to rule around Rs 50,000-51,000 a candy,” he said. Cotton Association of India (CAI) President Atul Ganatra said the cotton market is expected to be steady between Rs 62,000 and Rs 65,000.

Poppat said cotton prices were surging since the retail pipeline was empty. “There is huge demand for cotton as well as yarn. Speculators in the European Union have taken advantage of this and built open positions,” he said. CAI’s Ganatra said cotton mills were running with 30-45 days of stocks.

Exports may dip
Almost every player in the industry is of the opinion that cotton exports could be lower at 50 lakh bales this season (October 2021-September 2022) compared with 75-80 lakh bales last season. “India might export a minimum 50 lakh bales,” said Poppat, while Agarwal put the figures at 40-50 lakh bales.

Selvaraju said if cotton quality turns out to be good as expected, then more could find their way to destinations abroad. “That will make things a little difficult for mills at home,” he said.

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Carryover stocks
SIMA’s Selvaraju said the Committee on Cotton Production and Consumption (CCPC) had pegged the carryover stocks at 120 lakh bales and if additional 10-15 lakh bales of cotton would have been consumed or exported, ending stocks could be 105 lakh bales. According to estimates of CAI, the carryover stocks are estimated at 82.50 lakh bales.

Selvaraju said cotton production this year is estimated to be 360 lakh bales (170 kg) and if the carryover stocks are pegged at 100 lakh bales and imports at 10 lakh bales, the industry would have a total supply of 470 lakh bales. “This year, cotton consumption could be 330 lakh bales but it depends on the power situation. In Andhra Pradesh, industries are provided only 50% of their power needs during peak hours,” he said. Ganatra said production this year is expected to be 360 lakh bales, plus or minus 3%. “The crop is good in Central and Southern India, but it is lower in the Northern parts,” he said.

Disturbing trend
The cotton crop is likely to stay at the same level as of last year, at approximately 360 lakh bales (25% of world production). Though the sowing area was lower this year, the yield per hectare has increased from approximately 500 kg per hectare to 750 kg. Global supply of cotton will be short and prices are unlikely to head south soon, it is expected.

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The emerging market trend does have spinning mills worried. Expecting problems from private traders, who might buy huge stocks of cotton and try to sell during non-peak arrivals season at high prices, SIMA has written to the Prime Minister’s office to order CCI to purchase 40-50 lakh bales. “CCI can release the stocks regularly at the rate of at least five lakh bales a month to keep unscrupulous traders at bay,” Selvaraju said.

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