The Hindu Business Line : Cotton prices to stay firm next year too

Mumbai, Feb. 5 Even though 2007-08 season is still under way with crop being marketed, the global cotton market participants have begun to focus on the prospects for the next crop (2008-09). The forecast for next year is that production would trail consumption by about half a million tonnes (mt), as result of which global stocks would be drawn down further. This will obviously have implications for cotton prices. Already, for the current season, the average price is projected at 67 cents a pound, 8 cents higher than 59 cents a pound of the previous year. According to Washington-based International Cotton Advisory Committee (ICAC), the world cotton area next year is projected to remain more or less unchanged at 33.9 million hectares; but there would be regional changes.

area coverage

While the US may face a decline in area coverage of about 11 per cent, there could be slight increase in major producers China and India. World cotton yields are expected to continue rising in 2008-09 and are projected at 794 kg a hectare, the ICAC said adding that as a result, world cotton production would rise by 1.0 million tonnes, to 26.9 mt. World consumption, on the other hand, is set to rise further to 27.4 mt.

As result of this slight mismatch, the world market is likely to use up some inventory. Ending-stocks are projected 5 per cent lower at 10.9 mt.

Robust Season for India

As far as India is concerned, 2007-08 season has turned out to be a great one so far. Record cotton output (over 300 lakh bales) combined with attractive export opportunities (estimated at 60 lakh bales) have kept domestic prices firm. Growers have largely benefited from higher yields combined with firm prices.

However, textile mills have been rather unhappy with the internal price level.

Their expectation of a decline in prices based on large production has not materialised. The industry needs to sharpen its forecasting abilities, taking into account global and domestic market dynamics. It is believed that recommendation to ban or restrict cotton export has been made to the Government.

There is also reason to believe, the benefit of strong prices may be flowing to those who took a speculative view of prices early in the season and built inventory.

Trade reports suggest, some multinationals that have access to low-cost funds have created a huge stockpile of cotton and are currently enjoying windfall profits. This seems to a situation similar to oilseeds.

Despite record soyabean crop, market prices have remained very firm because of speculative inventory built up by some players.

Underground stocks

Whether the Government would take any action to bring the underground stocks of cotton into the market to support the cotton textile industry, which is already reeling under the adverse impact of a firming rupee, remains to be seen.

The peak season for cotton picking is over. Market arrivals from now on would slow down.

The potential for a major correction in prices appears to be rather limited. From March/April, planting and related developments in origins such as the US would be watched carefully.