Supply crunch soars cotton prices

The supply crunch in the textile industry had driven up prices higher than international prices and since the traders are unable to meet obligations, buyers could look to other markets. Cotton prices across the country are ruling high on subdued arrivals.

The lack of demand in the apparels industry has also impacted arrivals and although farmers are getting high prices, they prefer to hold back because of the currency shortage in the market.

India is the world’s largest producer of cotton and also the second largest exporter. The present cash crunch is leading to delays in sales of cotton and is creating shortages in the domestic market as well as reducing supplies to the global market, the International Cotton Advisory Committee (ICAC) said in its latest report.

Last month, Prime Minister Narendra Modi had scrapped Rs 500 and Rs1,000 notes but the move disrupted trading of farm commodities like cotton, soya as most farmers prefer payments in cash.

MM Chokalingam, Director, Marketing, Cotton Corporation of India (CCI) said that although the country has contracted some 6 lakh bales for export to countries including Bangladesh and Vietnam, traders are finding it difficult to meet contractual obligations because there is no kapas in the market.

He added that prices are currently in the range of Rs 5,200 per quintal while Minimum Support Prices are Rs 4,160 per quintal. This is because some traders are still offering old currency notes to farmers. Some clarity will emerge by the month-end once the currency issue closes. Till then prices will continue to remain high.

According to him, cotton arrivals are presently in the range of 1.20 lakh bales across the country on a daily basis although there is no much consistency. Given the existing cotton prices, there is little need for the Corporation to go in for MSP operations.The international rates are higher by 4-6 cents than the domestic market but traders do not stand to gain since they are unable to supply cotton as per the contract.

Last year, Pakistan was the biggest exporter and had exported some 20 lakh bales from India. This time, however, because of the border tensions, cotton export to the country has been affected, industry people said. According to industry sources, Bangladesh has contracted some 2 lakh bales,
China has contracted the same amount while Vietnam could export some 1 lakh bales from India.

With expectations of a bumper crop of some 350 lakh bales, Indian traders had contracted exports for some 6 lakh bales so far to Bangladesh, China, Vietnam and Pakistan but just 6 lakh bales. Last year, the country shipped some 69 lakh bales in export.