India on track to double its cotton imports this year

India, the world’s largest producer of cotton this year due to winged pests and droughts is on track to double its cotton imports. India is looking overseas for cotton as its own production is expected to fall by 12% to 33.8 million bales in the year ending Sept. 30, according to India’s Cotton Advisory Board, a body of government officials, growers, traders and exporters.

An Indian bale is about 374 pounds, smaller than the U.S. bale at roughly 500 pounds.

B. K. Mishra, chairman of the Cotton Corporation of India, government body responsible for buying cotton from farmers and sells it both domestically and abroad, in an interview Wednesday said that cotton purchases from abroad will not go beyond 2 million bales.

India has imported around 1.5 million bales of cotton so far this year and has already signed contracts for an additional 400,000 bales, traders and a government official said.

India’s increased cotton imports will help absorb some of the oversupply, said Georgia Twomey, a commodities analyst at Rabobank based in Sydney.

The falling expectations of Indian production and late arrival of the monsoon [rainy period] certainly led to some strong Indian activity in the global market, Ms. Twomey said. But there is an oversupply of cotton in the world market that needs to be absorbed.

The fall in domestic production this year was largely the result of back-to-back years of drought and an outbreak of damaging pests. While India has received a strong amount of rain overall in its monsoon period this year, early rain didn’t come at the time needed by cotton farmers.

The reason for the reduction in area during the current year is concerns of whitefly infestation in the north and pink bollworm in central and southern India, said an official at India’s Agriculture Ministry.

As a result, the Cotton Advisory Board said that India’s harvest this year may be its smallest since 2011.

While cotton prices globally have fallen, in India, cotton prices have risen by about 50% since the start of the cotton season on Oct. 1 last year to $320 a bale.

Mills in southern India have found it cheaper to import cotton than buy it from local markets even though India has large stockpiles of the commodity.

The sea-transport cost from Africa to the southern ports is lower than surface-transport cost from the central and western Indian states, making it alluring for domestic mills to import cotton, said D. K. Nair, former secretary-general of the Confederation of Indian Textile Industry.

The increased exports and production fall are good news for the global cotton market, as prices had been largely rangebound for the past couple of years due to large stockpiles of cotton in the world’s largest consumer China. In recent months, China has started selling its cotton stockpile, further reducing demand for the world market and keeping pressure on prices.

The China National Cotton Information Center lowered slightly its imports forecast for 2016-17 to 1.05 million metric tons, as the extended reserve auction period pushes back the need for China to return to the world market to source more of its cotton requirements, the Commonwealth Bank of Australia said in a research note. This is bearish for U.S. prices in the short-term, it said.