China top buyer of cotton from India cutting in imports depressing prices, India will be forced to make large-scale government cotton purchases from farmers for a second straight year. In the marketing year that ended on Sept.30, India spent 160 billion Indian rupees ($2.5 billion) to buy 8.7 million bales of cotton at a government-set minimum support price (MSP), against just 400,000 bales in the previous year.
According to Dhiren Sheth, president of the Cotton Association of India (CAI) during the peak supply season, prices will drop below the MSP (minimum support price) level since demand is negligible from China.
He counts on CCI to make aggressive purchases again this year as export demand was subdued and carry forward stocks were at record highs at an estimated 7.9 million bales.
Government buying, aimed at supporting farmers, will prevent the dumping of cotton in overseas markets by the world's biggest producer at a time when global prices are near six-year lows.
Indian farmers have begun the cotton harvest, but prices are already running below the MSP in some southern spot markets, forcing the state-run Cotton Corporation of India (CCI) to start buying at the support price of 4,100 Indian rupees ($63.15) per 100 kg.
China has in recent years taken more than half of India's cotton exports, propping up prices despite record output, but last year began cutting import quotas to stimulate demand for domestic cotton after it halted a state stockpiling programme.
B.K. Mishra Chairman and Managing Director of the CCI said that they haven't fixed any procurement target for the current year, but they will buy as much as farmers want to sell. However, this year since production was set to drop 1.5 percent to 37.7 million bales and consumption by local textile units has been rising, procurement was still likely to be lower than last year. So far CCI have opened 50 procurement centres. They could open 300 centres across the country like last year.
Demand from other Asian buyers like Vietnam and Bangladesh is likely to show improvement this year, although it is unlikely to make up for China's lost buying.
China's imports had declined 42 percent in the first nine months of the year to 1.16 million tonnes. The Chinese market is huge and no other country can make such large purchases.
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