The Hindu Business Line : US worried over Cotton Corpn’s purchases

In particular, the US Department of Agriculture’s Foreign Agricultural Service (FAS) feels that the disposition of the stocks will surely hit exports and prices of US cotton.

The Cotton Corporation has bought about 70 lakh bales cotton (170 kg) till now under the market intervention programme. It was asked to step in by the Centre after purchase by the textile industry slowed down due to recessionary trends. Also, ginning mills began to complain of the minimum support price (MSP) for cotton, raised 40 per cent this year, being high to make purchases.

On January 10, CCI Chairman, Mr S.C. Grover, told Business Line that the corporation had tied up Rs 15,000 crore through a consortium of 19 banks for making procurement at MSP. He also indicated that it would have to procure about 100-105 lakh bales this year. Its purchase in Maharashtra, Madhya Pradesh, Punjab and Andhra Pradesh is 60-65 per cent of the total arrivals this year. Arrivals, on the other hand, are down 20 per cent till now.

China too worries US

India apart, China’s move also to buy cotton from its farmers worries the US. “In order to protect their farmers’ income, China and India have dramatically increased government purchases to drive up domestic farm prices. The disposition of these recent aggressive purchases adds a new element of uncertainty and potential price volatility to global cotton markets,” it said in its outlook on global markets and trade in the commodity.

FAS said if significant portion of the stocks was held off the market, then demand could shift to other suppliers, including the US. But release of the stocks could further dampen demand, particularly for US cotton.

Together, China and India are planning to buy 250 lakh bales and CCI had mopped up 40 per cent of the cotton sold by farmers. On the other hand, China has bought 73 lakh bales of the 125 lakh bales it intends to buy. China already holds 40-60 lakh bales of cotton in its reserves, carried over from the previous season.

Higher prices

Mr Grover has said CCI had already offloaded 2-3 lakh bales due to shortage of storage facility and the corporation is staring at a loss of Rs 500 crore during the current fiscal.

FAS said: “These (procurement) policies raise the question of how many government-stocks will be carried over into the next marketing year, and what impact the policies will have on production in 2009 in these countries.”

In view of higher MSP and CCI procurement, cotton prices are ruling higher than last year. For example, Shankar-6 is currently ruling at Rs 22,000 for a candy of 356 kg against Rs 20,100 during the same period a year ago.

Area down

Meanwhile, FAS estimates Indian cotton area, yield, and production declining this year. Area has been projected to have declined to 93.5 lakh hectares (lh) from 95.5 lh last year. Yield is seen down to 536 kg a hectares from 561 last year and production at 295 lakh bales.