Agri Business

Cotton trade caught in a web of uncertainties

G Chandrashekhar | Updated on October 22, 2019

Cotton traders across the nation are currently facing a huge dilemma over crop size and the likely behaviour of prices in the coming months. With rainfall extending well beyond the middle of October, apprehensions have gathered over the crop size as well as quality.

While it is clear is that the country’s cotton harvest this year will be higher than it was last year, the quantum of increase is seen by different sections differently.

To be sure, the area planted to cotton this kharif season (2019-20) has been a record one at close to 128 lakh hectares (ha), up from 121 lakh ha last year. Maharashtra, Telangana and Rajasthan have reported higher acreage. However, we cannot ignore weather aberrations.

The South-west monsoon played truant the whole of June and most of July. Copious precipitation was witnessed in August and September that raised hopes of a bumper crop. However, extended rainfall in the first three weeks of October, an unusual phenomenon, has raised concerns about the crop size and quality.

According to the Agriculture Ministry’s first advance estimate released on September 23, the cotton crop is placed at 322.7 lakh bales (170 kilograms each). It has fallen short of the year’s production target of 357.5 lakh bales, but rebounded from last year’s 287.1 lakh bales, per the fourth advance estimate.

Subject to revision

But the government estimate is subject to revision. The first estimate of cotton production last year (2018-19) was 324.8 lakh bales, which in the fourth estimate was down by about 38 lakh bales.

The trade estimates are rather different. This writer has heard from different trade representatives cotton production estimates ranging from 330 lakh bales on the lower side to 370 lakh bales on the higher side.

However, it is unclear whether the loss, if any, caused by the recent spell of rains, especially in Maharashtra, has been taken into account.

Under the circumstances, arrivals are expected to gather momentum after Diwali. In other words, a realistic estimate of the crop size may be available around November 10-15.

However, the biggest challenge for the trade is from outside the country in the form of the ongoing trade negotiations between the US and China. Will there be a truce between the world’s largest exporter and the world’s largest importer of cotton? China has reportedly agreed to purchase agricultural goods worth $50 billon from the US and as a result soyabean rates have firmed up. Will cotton, too, be added to the list? In anticipation, US cotton prices have begun to inch up.

Importantly, a lot of guesswork is on about the chances of China buying cotton from India. A delegation from China visited Mumbai and New Delhi last week. This has raised hopes of the Asian major turning its attention to India. The visit is also seen as a fallout of the Indian Prime Minister meeting with the Chinese President earlier this month at Mahabalipuram.

Under the circumstances, Indian market prices stand to gain on any eventuality — lower crop and /or Chinese purchase.

Will the Cotton Corporation of India enter the market in a big way to support growers and ensure price support operations, is another question on the trade’s mind. On its part, CCI appears to be ready to commence procurement.

The writer is a policy commentator and agribusiness specialist. Views are personal.

Published on October 22, 2019

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