Indian cotton prices are likely to rule firm near record highs over the next couple of months as growers prefer to hold on to their produce to fetch better returns than rush to the agricultural produce marketing committee (APMC) yards.

“Currently, daily cotton arrivals across the country are 1.5 lakh bales (170 kg each) compared with two lakh bales during this time of the year. It is a clear indication that growers are holding back to ensure that they get good prices,” said Rajkot-based Anand Poppat, raw cotton, cotton yarn and cotton waste trader. 

19% lower arrivals

According to the Gujarat Cotton Trade Association (Gujcot), the pressing of cotton bales by ginners in the western State was lower during November and December compared with the same period a year ago. 

 The association said arrivals have been below expectations this year, though they are able to meet demand. It, however, said spinning mills had ample stocks and have avoided any panic buying. 

The US Department of Agriculture (USDA) Indian post said arrivals this season (October 2021-September 2022) were 19 per cent lower at 134.8 lakh bales, though they matched the past three-year average. 

Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA, said spinning companies had bought stocks at a lower cost from the previous season and had benefitted in terms of profitability during the first half of the current fiscal. 

Current prices

On Thursday, ginned cotton was quoted at ₹75,500-76,000 a candy (356 kg) in Gujarat for delivery within the State and ₹76,000-76,500 for delivery to mills in the south. Maharashtra ginners quoted ₹1,000 a candy higher than Gujarat rates. 

“Prices are higher for the south because payment usually gets delayed,” said Poppat. 

Gujcot said prices had dropped a tad last week after having increased to ₹76,000 with rates on MCX also pulling back simultaneously. On Thursday, cotton for delivery in February was quoted up at ₹36,760 a bale (₹78,925 a candy). 

Domestic cotton prices have surged to record highs this season as global prices have skyrocketed to an 11-year high on firm demand and tight supplies. Cotton for delivery in March on the Intercontinental Exchange, New York, is currently quoted at 121.59 US cents a pound (₹74,250 per candy).

The USDA said cotton growers expect prices to rise 20-30 per cent from current levels. 

Balance tight

Indian cotton is ruling at a premium as some of the multinational trading firms have hedged their risk in European futures. Fears of the domestic crop being affected by unseasonal rains have also resulted in prices ruling high.

The Committee on Cotton Production and Consumption (CCPC), a body of all stakeholders formed by the Government, estimated the crop at 363.18 lakh bales this season against 353.84 lakh bales last season. 

Poppat estimates the crop would be 330-348 lakh bales, while the Cotton Association of India, a body of traders, has pegged the output at 348.13 lakh bales in its latest revision. The USDA’s Indian post estimates the crop at 354.75 lak bales. 

“Besides, the demand-supply balance is tight. This is one reason why farmers are tending to hold back their produce,” said Poppat. The CCPC has estimated the carryover stocks to next season at 56.28 lakh bales compared with 73.2 lakh bales to this season. 

Last week, prices dropped when arrivals increased. Immediately, growers slowed bringing cotton to the APMC yards, he said. 

Export demand

With the Indian rupee dropping to over 75 to the dollar, export demand has picked up, he said. “Exporters are not rushing in to buy huge quantity. They are buying only in smaller lots,” the Rajkot-based trade said. 

Until last weekend, 25 lakh bales of cotton have been exported, according to traders. Though buyers abroad feel Indian cotton is costly, Bangladesh continues to buy for immediate requirement, said Gujcot. 

The USDA Indian post has estimated exports at 76 lakh bales, though the Committee on Cotton Production and Consumption, a body of all stakeholders set up by the Government, has pegged the shipments at 45 lakh bales compared with 75.9 lakh bales last season. 

Gujcot said spinning mills were covering only immediate cotton requirements as the yarn market is dull but ICRA said there was a recovery in domestic and export demand. 

The ratings agency said in the first nine months of the current fiscal, cotton yarn prices were 36 per cent higher than the last fiscal on an average despite a 42 per cent rise in cotton prices during the review period. 

Bangla top cotton buyer

ICRA’s Roy said the inclusion of all cotton yarn exports under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme from January 2021 onwards (as notified in August 2021) also supported margins. 

Nidhi Marwaha, Vice President and Sector Head, Corporate Sector Ratings, ICRA, said healthy growth in Bangladesh’s apparel exports are driving export demand. “While China remained the largest export market for Indian cotton yarn till last fiscal despite a moderation in its share in recent years, Bangladesh has overtaken China this year, accounting for 40 per cent share in first half of the fiscal. ICRA Ratings expect this demand to sustain for the next 9-12 months at least,” she said.

The USDA’s Indian post also expects strong demand for cotton yarn and value-based cotton textiles to continue sustaining the Indian textile sector.

“Firm cotton prices in India are here to stay. We don’t see prices dropping. Even if they drop, it will not be a sharp fall. A rise in consumption and a delicate demand-supply balance will support prices,” Poppat said.