Cotton prices are likely to come under pressure but they may not drop below the minimum support price fixed by the Government this year.

“Currently, Shankar-6 is quoting at Rs 39,000-40,000 for a candy of 356 kg. Prices may drop another Rs 1,000 but not more than that,” said Anand K. Poppat of Saurashtra Ginners Association.

The Shankar-6 variety is the one in demand for exports.

“Prices will come under pressure once arrivals pick up, given the sluggish buying activity now. But farmers are smart enough not to allow a further fall in prices,” said A. Ramani, a cotton trade analyst.

A major reason why prices will not fall below the support level is that farmers are likely to hold back their produce as they have the financial power, said Poppat and Ramani.

For the current season that began in October, the Centre has fixed Rs 4,000 a quintal as minimum support price for long-staple raw cotton varieties such as Shankar-6, Bunny and Brahma. For medium-staple raw varieties such as F-414 and J-34, the support price is Rs 3,700.

Currently, prices for Shankar-6 raw cotton are ruling at Rs 4,800 in Rajkot. Prices for raw cotton varieties such as F-414 and J-34 are ruling above Rs 5,000.

“These days, farmers are also moving their produce to markets where they can fetch higher prices,” said Ramani.

Fears were raised by a section of the trade that the Government may have started buying the natural fibre from farmers as part of its market intervention programme after the Cotton Association of India’s projection of a record crop.

The association has pegged the output this season at 380.5 lakh bales (of 170 kg). The estimate is against last year’s production of 334 lakh bales.

“Production will be a record this year, so there will be pressure on prices. The Corporation may have to buy cotton in Andhra Pradesh on behalf of the Centre,” said Poppat.

This will be required mainly as the crop quality in that State has been affected by rains over the last few weeks.

“Usually, cotton is under-priced in the South. Therefore, it may require some support,” said Ramani. “Prices will rule below Rs 40,000 a candy but will not drop below the support price. This is because once the arrivals gather pace, mills will begin buying,” said D.K. Nair, Secretary-General of Confederation of Indian Textile Industry.

Demand for cotton is expected to be good this year with all segments of the textile industry experiencing growth, said Nair.

“Power shortage in the South is beginning to affect the textile industry. If that is set right, then we should see good demand,” said Poppat. A section of the industry, however, has a different view, saying the economic slowdown could hurt the demand for cotton and drag down prices.

Besides domestic demand, export could also come in handy to rescue cotton growers.

“Demand from China continues despite the Government there unloading its stockpiles. We also are getting demand from Bangladesh, Indonesia, Turkey and Vietnam,” said Poppat.

The Chinese Government is procuring cotton for its stockpile at 20,400 yuan (Rs 2.08 lakh) a tonne and selling it at 19,000 yuan (Rs 1.94 lakh). Our cotton costs hardly Rs 1.25 lakh a tonne on landing there. So, Chinese mills still prefer to import,” said Popppat.

Nair and Ramani said the Chinese cotton import policy will play a role in Indian exports. “No one is sure how China will play its cards. Exports hinge on that,” said Nair. Despite this, cotton exports could be around 70-80 lakh bales, said Ramani. Last season, exports totalled 81 lakh bales against 129.59 lakh bales in 2011-12. Globally, cotton prices are seen ruling stable at the lower end after having slipped about 20 per cent since August.

There may be pressure on prices, given the forecast of a record global crop following higher production in the US and India. “Global prices are unlikely to be bullish,” said Ramani. On Wednesday, cotton contract maturing for delivery on ICE US ruled lower at 78.76 cents a pound.

> subramani.mancombu@thehindu.co.in

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