Demonetisation effect: cotton arrivals wilt, but prices bloom

As market arrivals of cotton take a hit on account of cash shortages due to the demonetisation of high-value notes, prices of the fibre crop in domestic market have shot up over the past few days, even pushing up the international prices.

The sharp increase in prices has left the textiles mills scrambling for cotton in the key producing States such as Maharashtra, Telanagana and Karnataka.

Cotton prices, which had come down to around ₹38,000-38,500 per candy (of 356 kg) during early November from a high of ₹48,000-49,000 in August, have now rebounded over the past days and are ruling at ₹41,000 levels, mainly on account of the steep decline in market arrivals in the past few days.

“The daily market arrivals around this (harvest) time of the year should be 1.5-2 lakh bales (of 170 kg each) across the country. But, now hardly around 30,000-40000 bales are coming into the market, resulting in a steep rise in prices over the past four days. We are unable to buy cotton at such high prices in States such as Maharashtra and Telangana,” said Manikam Ramaswami, Managing Director, Loyal Textile Mills Ltd.

The rise in Indian cotton prices is also driving up the international prices. Cotton prices in New York have moved up to around 72 cents per pound from 69 cents per pound over past few days. Trade sources attribute the sharp decline in arrivals to the cash shortage triggered by the demonetisation of currency of ₹500 and ₹1,000 denomination.

Farmers have been insisting on cash payments. The fear of adjustments of proceeds from cheque payments against their loans outstanding by banks is one of the reasons for a section of farmers insisting on cash payments.

Also due to the curbs imposed on the daily/weekly cash withdrawals, farmers are hesitant on realising their cheque payments. As a result, they have stopped sending their produce to the market, sources said.

The drop in market arrivals has led to the trimming of inventory for both the millers and ginners. “Many spinning mills have been operating at reduced capacity due to the shortage of cotton. We are operating at 40 per cent of the capacity,” said J Thulasidharan, President of Indian Cotton Federation and Managing Director of The Rajaratna Mills. Thulasidharan expects the situation to normalise in a week to 10 days.

Even the kapas or raw cotton prices have shot up due to the decline in arrivals in the past few days, said Ramanuja Das Boob, a ginner in Raichur, Karnataka.

Kapas prices, which were ruling at ₹4,800-4,900 a quintal last week, have now increased to ₹5,200. Prices of kapas at the start of the new season, a couple of weeks ago, stood at ₹5,700-5,800 a quintal.

“It will take some time to regularise the arrivals of kapas in the markets. Farmers have to prepare to accept payments through cheques or RTGS. In fact, they had accepted payments through cheques from Cotton Corporation of India, when it had procured at MSP. The hike in prices is temporary and for the time being till the withdrawal limits are increased,” Boob added.

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