G. Chandrashekhar

Mumbai, Nov. 25

THE cotton trade and industry is perplexed that reports of a substantially lower crop than earlier expected have begun to do the rounds in the market. As a result, cotton prices have reversed the softening trend and begun to firm up.

Since early this week, reports from important growing regions of Punjab, Gujarat, Maharashtra and Andhra Pradesh suggested smaller crop size either due to some crop damage (incessant rains) or exaggerated initial estimates.

"It is unclear where the truth lies because cotton crop size does not change so rapidly," remarked a well-known trader, who sought anonymity. There is also suspicion of a concerted move by some interests to arrest the falling price trend.

Incessant rains in Karnataka and Andhra Pradesh in the past week and even currently in parts of Tamil Nadu have caused concern in trade circles. Some estimates place the crop loss in the southern region at a maximum of five lakh bales. The Cotton Advisory Board (CAB) has estimated the national crop size at 255 lakh bales for 2005-06.

Exporters are primarily worried that firm prices would hurt execution of their contracts. A weak rupee may bring some relief, but export commitments have been made at competitive prices with expectation of a fall in domestic rates when arrivals surge.

Export commitments for over 10 lakh bales have been made so far at prices ranging between 50 and 55 cents a pound. Major destinations are in Asia China, Thailand, Indonesia, Taiwan and Bangladesh.

In October, market arrivals aggregated 12 lakh bales and for November, the projection is 25 lakh bales. Currently, daily arrivals average one-lakh bales. In December, market arrivals would tend to gather further momentum and as much as 50-55 lakh bales could be expected, according to traders.

The market is poised for a downward correction by early next month when arrivals pick up across the country. But whether or not there is truth in the reports circulating in the market is a matter for investigation by the CAB and concerned authorities.

Even assuming a slightly lower crop than initially estimated, supplies would still be at record levels because of huge opening stocks.

It is also estimated that as much as three lakh bales of extra-long stable cotton may be imported this season.

(This article was published in the Business Line print edition dated November 26, 2005)
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