The Hindu Business Line : Outlook positive for cotton; scenario favours exports

Mumbai, Oct.2 The simmering financial trouble in the US boiled over in September. The crisis saw markets — financial, stocks, commodities — collapse. Nervousness and the fear of the unknown resulted in market participants hurriedly liquidating their positions. The longs were the first to get out. In the commodity sector, prices declined across the board.

Cotton was no exception. Last month, prices fell sharply. The Cotlook A-Index dropped from 78 cents per pound on September 1 to 68 cents on September 30. This happened despite the market fundamentals pointing to a continued strong run in global cotton prices.

Despite the financial market backlash, the picture for the oncoming 2008-09 season looks positive for cotton prices. Declining stocks and wider mismatch in production and consumption are likely to be the key factors to impart an upward thrust to market prices.

Global output to dip

World cotton output is set to decline by 6 per cent to 24.7 million tonnes following lower output, mainly in the US (due to land constraints) and to a lesser extent in Turkey, Brazil and Egypt, according to the Washington-based International Cotton Advisory Committee (ICAC). World mill use too is projected to decline due to slower economic growth and higher cotton prices relative to polyester. Worldwide consumption is set to fall by 1 per cent to 26.0 million tonnes (mt). (26.4 mt).

World cotton stocks are set to reach their lowest levels in recent years. A decrease of 11 per cent to 10.9 mt (12.20 mt) has been projected by the ICAC. With declining production but continuing strong exports, the US will face the largest decline in stocks.

The ICAC price model forecasts the 2008-09 season-average Cotlook A-Index at 79 cents a pound, 6 cents higher than 2007-08 season average. This creates the possibility of price moving in the 70-90 cents a pounds range with a strong thrust towards the upper end of the range.

Positive for India

The constructive price outlook should prove positive for India. A large crop is getting ready yet again. In 2007-08, the crop size was 315 lakh bales. While there are differences among market participants about the size of the 2008-09 cotton crop — estimates vary between 290 and 320 lakh bales — what is important is that a small decline in acreage and weather aberrations in July have not affected production prospects to any significant extent. In particular, the crop in Gujarat is said to be in excellent condition.

Last season, cotton growers received remunerative prices because of a surge in exports, and they have now responded positively. In the current season also, growers can hope to benefit from favourable prices, buoyed by the sharp upward revision in minimum support prices.

It is, of course, necessary that the Government does not unduly interfere with market conditions. There will be lobby pressure to contain prices and curtail exports. New Delhi should not succumb. Export opportunities are once again turning out to be in India’s favour, given the global market fundamentals. A weaker rupee should provide a further fillip to export efforts.

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