Unexpected rains have firmed up cotton prices

Delay in harvest of the fibre crop in the key growing regions of Maharashtra, Gujarat, Madhya Pradesh and Telangana and other States due to unexpected rains have firmed up cotton prices over the past few days. According to Biren Vakil, an analyst with Ahmedabad-based Paradigm Commodities, the price rise is a temporary phenomenon. They may see some downward movement in prices after November. But till then, some more upside can be seen.

Also, an increase in buying by millers, has contributed to the bullish trend in both the spot and futures markets. Cotton futures on MCX for October delivery gained from ₹18,510 per bale (170 kg) to ₹19,170 within a week after hitting a peak of ₹19,250. At the spot market in Rajkot, prices moved up from ₹18,610 to ₹19,130 per bale.

Trade sources said that cotton prices will maintain a bullish trend till full-fledged arrivals begin and daily arrivals hit about 1.5 lakh bales.

The mills are buying about 85,000 bales on a daily basis and the arrivals are not matching it. Prices will remain firm till the arrivals increase because the supply pipeline is almost empty, said Arun Dalal, a trader in Ahmedabad.

Though raw cotton has started arriving in Punjab, Madhya Pradesh, Gujarat, Maharashtra and Andhra Pradesh, full-fledged arrivals are expected in the second week of November. This is putting additional pressure amidst increased buying from the mills. Prices of old cotton crop are hovering at around ₹5,500 per quintal for raw cotton, while fresh cotton, due to its higher moisture content, quoted lower in the range of ₹4,500-5,000 per quintal, as per trade source.

Over the last week, Maharashtra’s Marathwada and Vidarbha regions received rains, while there has been sporadic precipitation in southern and central Madhya Pradesh and southern Gujarat. According to traders, thin arrivals have started from these markets. Arrivals hovered in the range of 2,000-8,000 bales per day in Andhra Pradesh, Karnataka, Gujarat and Madhya Pradesh – arrivals from Punjab has been higher at 25,000-27,000 bales per day.

Ramanuj Das Boob, a ginner based in Raichur, Karnataka said that arrivals are slow due to continuous rains in Telangana and Karnataka, which is seen affecting the quality of the fibre. The cotton arriving in the markets has higher moisture of over 10-12 percent, while the acceptable moisture levels are 9-10 percent. But all mills are buying cotton with higher moisture.

J Thulasidharan, Managing Director, Rajratna Group of Mills, and Chairman of the Confederation of Indian Textile Industry (CITI), said that mills are entering the market as they run out of cotton stocks. The fresh cotton arrivals are delayed as harvesting in the fields where it rained recently is difficult.

However, good rains have helped the cotton crop, and the long-term trend appears bearish, not only in India but globally, too, as the US, Australia and other cotton-growing countries have been seeing good crop. Thulasidharan added that prices will cool off in the medium-term as the supplies will pick up.

The Ministry of Agriculture estimated that the cotton acreage during the 2017-18 season (October-September) will rise 12 per cent compared to last year.
The yield is also likely to go up in view of the good monsoon witnessed across all cotton-growing regions thus far. The government estimates of cotton output of 322.73 lakh bales, while the trade sees a higher crop on better yields.

On global front, the production is projected to increase in all major producing countries, including the US, India, China, Pakistan, Brazil, Francophone Africa and Turkey.

The International Cotton Advisory Committee (ICAC) has predicted that world cotton production will increase 10 percent during 2017/18 to reach 25.4 million tonnes.