The Hindu Business Line : Global cotton prices set to rise

The country's cotton export prospects during 2006-07 season are likely to brighten further if the forecast increase in international cotton prices materialises. In 2005-06, cotton exports are projected to reach an unprecedented 35 lakh bales, in contrast to the situation until four years ago when close to 20 lakh bales were imported to meet domestic shortfall.

Interestingly, despite large opening stock and high level of output, cotton prices in the country have stayed reasonably stable during the last several months, contrary to earlier expectation. Producer-friendly international market conditions and large exports provided adequate support to prices.

Promising season

The ensuing season is also expected to commence with a large opening stock of nearly 75 lakh bales. However, a further strong growth in cotton exports next season is almost entirely dependent on yet another harvest of a large crop and how effectively logistics related weaknesses in the movement of export goods are addressed.

The emerging global market conditions should encourage both production and export from India. The Washington-based International Cotton Advisory Committee (ICAC) has forecast world cotton pries to go upby over 20 per cent next season.Cotlook A-Index — a principal measure of international cotton prices — is forecast to average 69 cents a pound in 2006-07, up from the average of 56 cents a pound this year. This price forecast is based on expectation that world cotton consumption in 2006-07 would reach a new high of 25.7 million tonnes (24.9 mt), while world production would trail consumption.

The driver of the world cotton market would again be Asia. Output for next season is projected at 25.0 mt (24.8 mt), while world exports are expected to show a robust increase to 9.3 mt (7.7 mt). According to ICAC, mill use in China, India and Pakistan is expected to rise 6 per cent to 16.7 mt in 2006-07 accounting for 65 per cent of global mill use.

Acreage to go up

World cotton area is expected to increase slightly to 34.6 million hectares, while the world average yield is forecast stable at about 720 kg per hectare. The anticipated rise in production in China, India, Pakistan, Turkey and African-Franc zone may be partially offset by decline in the US.

Given that projected demand-supply fundamentals support rising prices and strong export prospects, it remains to be seen how far India is able to capitalise on this favourable situation.

Although it is premature to put any specific number, based on last three year's experience, it may not be unreasonable to assume cotton output of 240-250 lakh bales for 2006-07.

In other words, considering large opening stock and satisfactory production prospects, supplies are likely to be abundant. Physical exports could well reach 50 lakh bales next season if all stakeholders make concerted efforts.