The Hindu Business Line : Sharp dip in market arrivals of cotton, soyabean

“After last year’s highs, farmers are finding it difficult to accept the new rates and are, therefore, trying to hold back their crop. Had arrivals been as before, prices would have collapsed even more.”

Harish Damodaran

New Delhi, Nov. 23 Farmers are seemingly yet to reconcile themselves to lower commodity prices in the aftermath of the global financial meltdown. This is apparent now especially in the case of soyabean and cotton.

The country has, this year, produced record soyabean and cotton crops. The Soyabean Processors’ Association of India (SOPA) has estimated the size of the 2008-09 harvest at 108.18 lakh tonnes (lt), against the previous year’s 94.73 lt (which was again an all-time-high then).

Likewise, the Cotton Advisory Board has projected this year’s cotton output to touch a fresh high of 322 lakh bales (of 170 kg each), from the 315 lakh bales of 2007-08.

RAW COTTON ARRIVALS

But despite bumper production, market arrivals of both the crops are considerably lower this year. As on November 15, raw cotton arrivals across the country amounted to only 36.50 lakh bales, nearly 22 per cent below last year’s corresponding 46.65 lakh bales.

The same trend is visible for soyabean in Madhya Pradesh, which accounts for about 55 per cent of the country’s output. According to the data compiled by the MP Mandi Board, total arrivals in major mandis of the State since October, at almost seven lt as on Friday, is down 21 per cent from the 8.8 lt cumulative sales reported at this time last year.

UNSATISFACTORY PRICES

One reason for this appears to be the current prices, which are not to the satisfaction of farmers. Prior to the credit crisis, there was expectation that medium-long staple kapas (un-ginned cotton) would fetch Rs 3,500 a quintal or more on the back of surging export demand.

Instead, prices are now ruling near to the minimum support price (MSP) of Rs 2,600 a quintal, with the bulk of purchases being done by the Cotton Corporation of India (CCI). This, in turn, is a reflection of the drying up of the export market along with the slump in demand from domestic textile units. The benchmark Cotlook Far Eastern ‘A’ Index, which averaged 77.09 cents a pound in September, closed this week at 51.80 cents.

But having ridden a boom in both production as well as prices in the last four years – courtesy, Bt cotton and a nine-fold jump in exports – it will take some time for growers to adjust to the new reality.

SOYA TOO RULES LOW

In soyabean, too, the story is similar. After clocking 50 lt of exports valued at over Rs 7,300 crore during 2007-08 (October-September), soyameal shipments have, for the first time since 2003, shrunk by 15 per cent in October. Export prices have also dropped to $262-265 a tonne (free-on-board, Kandla/Bedi), from the average $480-490 for July-August.

As a result, soyabean is currently selling at 1,450-1,550 a quintal in Madhya Pradesh, which is just above the MSP of Rs 1,390. Last year, prices were at this time quoting roughly Rs 200 a quintal higher and going up to Rs 2,600-2,700 towards the season-end. “After last year’s highs, farmers are finding it difficult to accept the new rates and are, therefore, trying to hold back their crop. Had arrivals been as before, prices would have collapsed even more,” said Mr Rajesh Agarwal, spokesperson of SOPA.

According to him, bigger farmers are not experiencing any immediate liquidity pressures because of the profits from last year’s crop. Also, many of them are generating cash by liquidating whatever little stocks they have of wheat that was harvested in March-April. “They are staggering their soyabean sales in the hope of cashing on in every little increase in prices from these levels,” Mr Agarwal added.

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