After having gained over 15 per cent since the beginning of 2024, cotton prices will likely rule firm for the remainder of the season to September due to a tight balance sheet, traders and analysts say.

If the current trend continues, then India’s cotton exports could rise from a low of 15.5 lakh bales (170 kg) witnessed in the 2022-23 (October-September) season. 

Cotton futures on ICE are currently trading at a one-and-a-half-year high, which traders attribute to speculative buying. There is sustained demand for the natural fibre, though. 

Current prices

Currently, May futures on ICE are ruling at 94.42 cents (₹62,150/candy). On the Multi-Commodity Exchange, May futures ended at ₹62,150 a candy on Monday. In Rajkot, Shankar-6 cotton, a benchmark for exports, was quoted at ₹57,900 a candy. 

The modal price (the rate at which most trades take place) of unprocessed cotton (kapas) at Rajkot Agricultural Produce Marketing Committee (APMC) yard ruled at ₹7,025 a quintal with prices rising over ₹500 in the past week. 

The US Department of Agriculture (USDA), in its World Markets and Trade report, said cotton futures rose to their highest level in 4 months in January with the March 2023 contract on the Intercontinental Exchange (ICE), New York, settling at roughly 88 US cents per pound (₹57,500 per candy of 356 kg). “Strong January foreign sales for US cotton relative to available supplies supported prices rising roughly 8 cents since December 2023,” it said.

Turning speculative

“The international cotton market has turned speculative and is currently ruling above Indian prices. This could result in Indian farmers holding back their produce like last year. Indian prices may rise in tandem but we are not sure how much they will drop once global prices dip,” said Rajkot-based Anand Popat, a cotton, yarn and cotton waste trader. 

“The current rally in cotton looks to be volatile with too many fluctuations. Hedge funds are speculating too much on ICE. There doesn’t seem to be any correlation with fundamental demand and supply,” said Ramanuj Das Boob, a cotton sourcing agent for multinational and domestic firms in Raichur, Karnataka. 

Globally, there is no long-term demand to sustain the price rally. The price rise will further hurt the textile value chain more, he said, seconding concerns raised by spinning mills over rising cotton prices.

In its latest weekly export sales data, the USDA reported that exports increased 11 per cent week-on-week with China, Vietnam and Pakistan being the primary importer. 

Price forecast

Research agency BMI, a unit of Fitch Solutions, said the Commitments of Traders Report as of January 30 showed that net long positions in cotton futures and options reached 28,647 contracts, up from a net short position of 15,809 in June 2023. Currently, they have increased over 80,000. 

BMI said, “We have held our average price forecast for ICE-listed second-month cotton futures in 2024 unchanged at 88.0 cents/lb, above the 2023 average of  83.3 cents. On February 2, 2024, ICE-listed second-month cotton futures reached  88 cents, representing a 7.2 per cent increase since the start of the year. This reflects the increasingly bullish sentiment recorded in the cotton market throughout Q323 and Q423.”

The USDA said global production is projected to be down by 300,000 bales (227 kg) at  112.8 million bales as a result of lower production in Australia and Benin.  It estimated consumption at 112.5 million bales, global trade at 42.9 million and ending stocks at 83.7 million bales for the 2023-24 (October-September) season. 

Lower imports 

Imports by India, China, Pakistan and Turkey are likely to be lower, while shipments from Brazil, Argentina and Australia have been pegged lower by the USDA. 

Atul Ganatra, President, Cotton Association of India, told a business television channel recently that with the Cotlook Index currently over 100 cents, imports of cotton, including the 11 per cent duty, could result in the landed price of the natural fibre being ₹70,000-71,000 a candy.  

BMI said prices during January-June 2023 were lower averaging 82.6 cents leading to a drop in production in major markets besides a rebound in Chinese imports. “We expect a tightening of the global cotton market in 2023-24 due to decreases in production and increases in consumption, which will support higher prices compared to 2022-23. On the supply side, we expect global production to be 113.4 million bales in 2023-24, down from an estimated 116.6 million bales in 2022-23,” it said. 

This will largely be driven by the expected 12.1 per cent year-on-year decrease in US production, particularly in Texas, as well as a 10.4 per cent year-on-year decrease in production in China. 

Export demand up

According to the USDA, the harvested area for cotton production in 2023-24 will decrease by 7.9 per cent in China and by 3.1 per cent in the US compared with 2022-23. This will be offset by expected increases in production in Brazil by 8 per cent, Pakistan by 71.8 per cent in the wake of the recovery from flooding in 2022 and in Turkey by 5 per cent, BMI said.

As a result of ICE prices ruling higher than domestic prices, demand for cotton exports has increased. “We were expecting exports to be around 15 lakh bales (170 kg) but looks like it will be over 25 lakh bales,” Poppat said.

Ganatra said his association expects exports to go up to 18-20 lakh bales from its initial estimates of 14 lakh bales. “Indian cotton is the cheapest in the world. In view of this, exports are likely to be good,” he said.  

Popat said overall, the cotton market has turned bullish.