The Hindu Business Line : Cotton depressed due to huge inventory build-up

, Huge inventory of cotton accumulated with traders, mills and government agencies has imparted a distinct bearish sentiment to the domestic market, a situation that is unlikely to change any time soon.

World cotton prices are relatively strong, making exports from the country viable. Yet, domestic cotton stocks are expected to reach their peak by end-April.

Market arrivals since the beginning of the season from October 2005 are estimated at a little overt 200 lakh bales, covering almost 80 per cent of the estimated output of 250 lakh bales for 2005-06.

"Current stocks (off-farm) are around 154 lakh bales", Mr Shirish Shah of Bhaidas Cursondas & Co, told Business Line.

Another 45 lakh bales are yet to arrive and would make it to the market over the coming months. The current year is likely to close with a new record of 80 lakh bales as ending-stock, Mr Shah said.

Arrivals continue

In Maharashtra, where production is estimated at 48 lakh bales, arrivals continue, but with low micronnaire count. The State Federation has reportedly procured over four lakh bales, taking the agency's stock level to a huge 11.5-lakh bales including last season's stocks.

Cotton exports from the country have seen heartening numbers this season.

Exports up

Trade representatives asserted that total exports during the season could be anything between 30 lakh and 40 lakh bales.

Nearly 30 lakh bales have been contracted for, out of which shipments by end-March would be close to 25 lakh bales. The rest will be shipped out in the new fiscal. In addition, export possibility for another 5 lakh bales exists, traders said.

Major importing countries are China, Pakistan, Bangladesh, Indonesia and Thailand.

Mismatch

While production increases are heartening, a mismatch between supply and demand is creating problems for primary producers. Robust production of last three seasons and sluggish domestic offtake have combined to result in a glut in the domestic market.

It may be necessary for the policymakers to ensure that cotton growers are not penalised for producing more. At the same time, knee-jerk reaction in the form of a sharp increase in support price (unrelated to market conditions) is also not desirable.

`Guided' growth

View that the cotton sector needs "guided growth" is gaining ground. Right from production and sale of seeds to marketing and usage of cotton, the sector lacks authentic data that can allow stakeholders take informed decision.

For instance, mills can make public their variety-wise consumption data well in time and also announce their tentative plan for the following season.

Similarly, seed companies can share variety-wise and region-wise sales data.

A meaningful cotton demand-supply balance sheet would benefit all players.

Currently, everyone is indulging in a guessing game, a situation that encourages speculators, rather than helps genuine stakeholders.

May/June will be decisive for the market. Planting intentions in the US and the onset of monsoon in India by early June may be crucial indicators of market direction.

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