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Low prices may fuel cotton use

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G. Chandrashekhar

Mumbai, Feb. 3

A STEEP fall in global cotton prices caused by a sharp increase in production to record levels is expected to stimulate consumption to a new high. The price fall may also generate large inventory build-up and importantly, impact cotton plantings next season.

Global cotton prices are currently ruling at around 45 cents a pound, markedly below last year's average of 68 cents a pound, a six-year high. The consumer-friendly market is likely to encourage higher consumption. Mill use may increase by 1.4 million tonnes (mt) to reach a record 22.7 mt.

According to Washington-based International Cotton Advisory Committee (ICAC), declining cotton prices in 2004-05 are expected to curtail plantings in 2005-06. World area is projected to decline by about 2 million hectares to about 33 million hectares.

Production next year is forecast to decline to 22.9 mt, down 2.3 mt or 9 per cent, still the second largest crop on record. Low prices this season would continue to encourage mill use next year too. However, prices are forecast to rebound next year to 57 cents a pound. Supply and demand estimates suggest that Cotlook A-index will average 47cents a pound this season, 21 cents below last year's average, ICAC remarked, adding that season-to-date average Cotlook A-index during the first six months of 2004-05 (season begins August) was 51 cents a pound.

Indian cotton growers who have produced a record crop are bearing the brunt of low prices. Even as market arrivals are going on, prices continue to be under downward pressure. Government's oft-repeated talks of supporting prices and ensuring remunerative incomes to growers through subsidised exports have evaporated without action. This will potentially impact planting next year.

(This article was published in the Business Line print edition dated February 4, 2005)
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