Range Bound Indian Market Despite Volatile ICE

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Indian cotton prices comparatively became expensive last week after ICE fell from its high. Indian prices did not react much to this fall. Indian prices are trading with good support from export demand. Liquidity in the open market is a bigger challenge for exporters.

Quality issues are continuing in cotton, especially this year RD and staple issues started earlier than in previous regular seasons. All India daily arrival is at 80000-90000 bales. Cotton Corporation of India has sold around 12.80 million bales of 170 kgs each in season 2020-21. Majority of sales were to traders and local spinners.

In addition to domestic sales, CCI has sold 30,000 bales to Bangladesh. CCI has sold around 10.80 million bales of previous season’s stock and 2 million bales from the current season. Last year CCI had stocks of 11.5 million bales and now around 700,000 bales from the previous season remain unsold with CCI. Till now CCI has procured around 9.2 million bales at MSP for 2020-21 season. With seed cotton prices trading above MSP, farmers no longer require CCI intervention on a large scale. Only in rural or far-flung areas CCI is buying limited volume on daily basis which is approximately. 8000-9000 bales.

The Committee on Cotton Production & Consumption (CCPC) has estimated the carryover stock at 12.10 million bales for the current season. The CCPC has estimated India could still carry over a high 9.75 lakh bales of cotton stock to the next season, while CAI has estimated it at 11.5 million bales of 170 kgs each. This huge carryover stock arose due to lockdown in March 2020, which resulted in the textile industry, particularly spinning and garment units, shutting down. Production began in full swing only after September.

Cotton exports from India
India’s cotton exports are likely to cross 6 million bales (each of 170 kg) for the current season (October 2020-September 2021). Almost 3.5 million bales have been already shipped. This is primarily due to Indian cotton’s price competitiveness in the international market. Indian S-6 cotton is trading around Rs 46,000 per candy ex. gin (each of 356 kg of processed cotton). At this price too there is good demand from export markets. Last year India’s cotton exports were estimated at 50 lakh bales. Indian S-6 cotton prices are ranging from Rs 44000-46000 per candy despite volatile ICE.

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CAI projections
CAI, in its latest crop outlook for March, stated that India’s cotton imports will be around 1.2 million bales for the year, which is lower by about 200,000 bales from the earlier estimated 1.4 million bales for the season. The likely drop is attributed to the recent hike in the import duty on long-staple variety of cotton. Last year, India had imported 1.55 million bales. As per the CAI data, as on February 28, total 700,000 bales have already arrived at Indian ports.

Cotton balance sheet
Total cotton availability for the season is estimated at 49.55 million bales, which includes opening stock of 12.5 million bales at the beginning of the cotton season on October 1, 2020, and imports of 1.2 million bales, besides the crop size of 35.85million bales, of which 29.90 million bales or about 83% crop has already arrived in the markets till February 28, 2021.

The CAI estimates suggested that based on the consumption projections, about 33 million bales will be consumed in the domestic market, while 6 million bales will be exported leaving behind the carryover stock at the end of the cotton season 2020-21 on September 30, 2021, at 10.55 million bales, which is marginally lower from 10.75 million bales in the previous season.

Record cotton stock at MCX warehouse
Last week, cotton stock in MCX accredited warehouse touched a new high of 216,600 bales against previous high of 214,700 bales on March 30, 2019. The rising stock at warehouse was on the back of increasing hedging activities as the export demand, especially from China, has hit a new high. China has low cotton inventory.

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Cotton prices have gained over 10% so far this year following the firm trend in  global cotton trade. Cotton production globally is projected to touch a four-year low and imports by China are estimated higher. The Centre’s decision to impose a 10% duty on imported cotton is seen as supporting domestic prices.

USDA WASDE report March 2021
This month’s 2020/21 US cotton forecasts show lower production, consumption, and ending stocks relative to last month. Production is reduced 250,000 bales to 14.7 million, based on the March 9 Cotton Ginning’s report. The final estimates for this season’s US area, yield, and production will be published in the May 2021 Crop Production report. Consumption is reduced 100,000 bales due to the industry’s lagging recovery from the previous year’s sharp losses. Ending stocks are 100,000 bales lower this month at 4.2 million bales. The projected marketing year average price received by upland producers of 69.0 cents per pound is up 1% from last month.

The global 2020/21 cotton supply and demand estimates show lower production and ending stocks compared with last month, but higher mill use and trade. Estimated global production is reduced nearly 830,000 bales, largely due to lower Brazilian and US production. Cotton import pace and indications of recovering global consumption helped boost consumption estimates for Turkey, Bangladesh, Pakistan, and Vietnam, more than offsetting lower projections for the United States and Taiwan. Imports are also projected higher in the countries with larger consumption, and the forecast for 2020/21 world trade is more than 600,000 bales higher this month. On the export side, higher Indian exports account for most of the increase as auctions by the Cotton Corporation of India have released much of the cotton purchased last year under the MSP programme. World ending stocks in 2020/21 are forecast 1.1 million bales lower than last month, at 94.6 million bales.

US cotton export sales for week ending March 4, 2021
Net sales of 212,000 RB for 2020/2021 were up 25% from the previous week and 5% from the prior 4-week average. Increases were primarily for China (58,000 RB, including 20,200 RB switched from Vietnam), Vietnam (30,700 RB, including 400 RB switched from Japan, 400 RB switched from South Korea, and decreases of 4,200 RB), Turkey (30,300 RB), Pakistan (23,600 RB), and Bangladesh (21,300 RB).  For 2021/2022, net sales of 92,200 RB were primarily for Mexico (56,300 RB), Turkey (23,300 RB), and China (10,100 RB).

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Exports of 351,600 RB were down 7% from the previous week and 1% from the prior 4-week average. Exports were primarily to China (94,000 RB), Vietnam (70,200 RB), Pakistan (60,200 RB), Turkey (36,700 RB), and Mexico (22,600 RB).

Net sales of Pima totaling 12,400 RB were up 58% from the previous week and 13% from the prior 4-week average. Increases primarily for China (4,400 RB), India (3,400 RB), Pakistan (2,300 RB, including 800 RB switched from the United Arab Emirates), Germany (900 RB), and Thailand (700 RB, including 100 RB switched from Japan), were offset by reductions primarily for the United Arab Emirates (800 MT).  Exports of 23,700 RB were up noticeably from the previous week and from the prior 4-week average. The destinations were primarily to India (7,400 RB), China (4,100 RB), Pakistan (3,600 RB), Peru (3,000 RB), and Vietnam (2,100 RB).

(Vimal Verma is a cotton trader)

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