Continued bullish market is giving good support to cotton prices across the world. Indian cotton prices are however lagging due to huge stocks with CCI, alongwith aggressive selling by CCI at incredibly competitive prices, compared to world cotton prices.
In open market, all India daily seed cotton arrivals are sharply downat around 80,000-90,000 bales a day, from the earlier 140,000 bales a day level.Gujarat is still contributing around 35,000 bales a day which is highest contribution across India.Ginners are continuing to holdstocks with supportive futures market. With higher ICE, Indian cotton is attractive as CCI has not hiked prices 1:1. This gives a lucrative opportunity to Indian buyers and exporters, who are in the market buying huge quantities of cotton.
Higher ICE makes Indian cotton business competitive
ICE May contract is already trading 95+ Usc, which was next target after 90 level. Now it would be interesting to see what kind of profit booking happens at this level, or will speculators continue to take it higher. At present sentiment is still bullish but it is difficult to be certain about speculators’ behaviour, how would they approach the market, going ahead. Next week would be more crucial to see ICE moving up or down or staying somewhere near the 95 centlevel.
With higher ICE, good export business is reported from India. If the trend continues, India’s exports could well touch 7 million bales for the current season. There is an ongoing debate in the market about crop numbers. Estimates differ by a wide range from 32-37 million bales. Going forward, production and export numbers would be highly effective to give push/support to the market. With time, clarity on these figures will certainly lead Indian prices influenced by fundamentals. In the last two weeks, CCI’s cotton sales could have touched 2 million bales which is a considerably high number.
CCI, Mahafed sales
CCI& Maharashtra Federation have sold around 593,000 bales on 23rdFebruary. CCI &Mahafed sold nearly 1.348 million bales from old and current season procured cotton between 15-20 February.Demand for CCI cotton continues to be extraordinarily strong in the back of steady to slightly higher discount(domestic-ICE futures). Domestic and export demand for yarn too has been supportive.
Gujarat S-6 price for 29 mm/75RD is already trading around Rs46000 per candy, which is equivalent to USC 81 per lbs for ex-ginning factory prices in Gujarat. Which is again approximately 10USC lower from ICE May for CIF Far-East ports.
ICE May cotton is trading at contract high of 95 cents plus, continuing to charge higher in the face of growing demand and an improving world economy. Pertaining more to cotton, US demand is doing very well in 2020-21 with exports up 19% from a year ago and showing benefit from China’s growing economy. USDA has yet to recognise the export increase on its US balance sheet so there is room for its 4.30 million bale ending stocks estimate to go lower.
For the newcrop season, USDA estimates another reduction in US ending cotton stocks of a halfmillion bales. With prices of corn, soybeans, sorghum and winter wheat at profitable levels, there is little room for an increase in cotton acres in 2021 and that should help support prices in the new season.
CCI, under MSP has purchasedaround 9.18 million bales accounting for nearly 25% of the projected crop this year. The Committee on Cotton Production and Consumption (CCPC) has estimated this year’s production at 37.1 million bales compared with 36.5 million bales last year. The CAIhas retained its production estimate at 36 million bales. India holds an advantage with high carryover stocks of over 11 million bales from last year. CCPC has projected the carryover stocks from last season at 125 lakh bales, while CAI has pegged it at 11.35 million bales.
Market reported CCI has sold 2 million bales so far and the corporation currently has 7 million bales stocks with 6.3 million bales from the current season.According to the Ministry of Agriculture and Farmers Welfare, seed cottonarrivals across the country were 284,000 bales during February 15-18, lower than 391,000 bales during February 8-11.
Chinese mills after holiday
After Spring Holidays, China started its factories and people returned to work. During holidays, mills were unable to buy inventory, and are stocking up on cotton now. Like India most of the sound mills are having enough stock so these are not in hurry to purchase. Mills have good orders for yarn and running with maximum possible capacities to fulfill orders. Higher cotton price and good demand led to an improvement in yarn prices too. Yarn inventories are reported to be limited.
The US ban on China’s Xinjiang cotton yarn over the inhuman treatment meted out to Uyghurs is now impacting the economic growth of its cotton companies. Thousands of companies worldwide are affected after the United States blacklisted 87% of China’s cotton crop – one-fifth of the world’s supply – citing human rights violations against Muslim Uyghurs in China’s northwest Xinjiang region.
USDA projects 12 million US cotton acres for 2021
USDA’s early projection for 2021 US cotton acreage is 12 million acres – 0.7% below the 12.1 million acres planted in 2020 and the smallest planted area since 2016. The projection was announced Febraury19 during USDA’s Agricultural Outlook Forum. USDA’s Prospective Plantings report – the department’s first survey of producer planting intentions – will be conducted in early March and published on March 31.
US cotton export sales for week ending 2/11/2021
Net sales of 119,500 RB for 2020/2021 were down 57% from the previous week and 59% from the prior 4-week average. Increases primarily for China (44,100 RB), Vietnam (27,200 RB, including 700 RB switched from South Korea, 200 RB switched from Japan, and decreases of 100 RB), Bangladesh (18,300 RB), Pakistan (7,200 RB), and Turkey (6,900 RB), were offset by reductions primarily for Mexico (4,000 RB) and Nicaragua (400 RB).
For 2021/2022, net sales of 2,100 RB resulting in increases for Turkey (11,000 RB), were offset by reductions for Bangladesh (8,900 RB). Exports of 311,800 RB were down 28% from the previous week and 8% from the prior 4-week average. Exports were primarily to Vietnam (90,000 RB), China (82,300 RB), Pakistan (26,700 RB), Turkey (25,600 RB), and Mexico (19,800 RB).
(Vimal Verma is a cotton trader)