Traders say dip in cotton prices will be short-lived, may rally again

After an unusual rally at the start of the harvest season, cotton prices are headed for a correction. This, most traders believe, will be temporary and short-lived – amidst fears of a lower-than-expected crop. They feel this will result in a further spike in prices, near the end of the arrival season in March.

Cotton prices had touched a high of ₹42,500 a candy (each of 355 kg) recently, before showing a correction of about ₹1,000 to trade at ₹41,400 for the 29 mm fibre. Traders, however, consider the dip in the prices as short-term mainly because the arrivals not improving significantly after a disruption caused by the demonetisation announcement on November 8 last year.

“Recently, we have seen arrivals improving somewhat but not significantly. This caused some short-term bearish trend in the prices. However, by the end of December, the arrivals have been around 1.08 crore bales (of 170 kg each), which is still deficit of about 60 lakh bales as compared to a normal arrival season,” said a leading cotton trader from Mumbai, hinting at a further upside in the cotton prices amid fears of a lesser than expected crop.

Cotton exports continue to be robust further adding pressure on the supply-demand situation of the fibre in the domestic market. “So far about 20 lakh bales have been exported and another similar quantity is likely to be exported by the end of March. Total exports for the year are likely to cross 40 lakh bales amid increased buying from Vietnam and Bangladesh. This will further spike the prices to make newer highs,” informed another trader from Gujarat not willing to be named. Raw cotton prices are hovering in the range of ₹5,400-5,825 per quintal, which is one of the highest for the season. The market prices for cotton are significantly higher than the minimum support price (MSP) of ₹4,050 per quintal.

In anticipation of higher prices, farmers are believed to be holding back the cotton stock.

In the international market, the New York Cotton Futures ended marginally higher at 72.69 cents per pound while the Cotlook A index stood at 81.5 cents. Traders termed the fundamentals to be neutral to bearish. However, the futures continue to remain firm.

“There is speculative trading taking place at present, which is keeping the prices up. Considering the crop estimates of US, China and India, there is sufficient supply for the season, putting the mid-to-long term outlook to bearish,” an exporter informed here.

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