Global cotton rally may spur cultivation

A sudden spurt in cotton futures in the international market over the last three days has left cotton traders perplexed in India. While the fundamentals support a possible bearish trend owing to wider sowing of the fibre crop, the recent rally in international markets is seen encouraging farmers towards further cotton cultivation.

On the Intercontinental Exchange (ICE) in the US, the Cotton futures for July 2017 contract rallied by about 12 per cent in just three sessions to hit a high of 85.32 cents per pound on Monday — a level not seen in more than two years. This prompted ICE to increase the margin requirements — thereby indicating speculators’ play behind the sudden spurt.

On ICE the cotton July futures cooled off a bit to 83.99 cents on Tuesday.

This sent out a bullish sentiment in the global cotton markets including India, a key global cotton player. The spot rates on Indian markets rebounded by nearly ₹1,000 per candy (each of 356 kg) to trade at ₹42,700 on Tuesday.

On the MCX, Cotton futures for the immediate month contract quoted at ₹21,170 per bale after hitting a high of ₹21,260. In March, Cotton futures had quoted at ₹21,060.

According to experts the rally is artificial and will be short-lived. The intergovernmental group, International Cotton Advisory Committee (ICAC), had projected an increase of about 1 per cent in cotton production globally to 23.1 million tonnes in 2017-18.

“In 2007, in India, cotton was removed from the Essential Commodities Act. As a result, our prices got linked to global cotton prices. This sentiment of New York Cotton rising by about 10 per cent in a short span has some impact on the domestic market also, but this hike is not sustainable. For India, we have good cotton stocks of about 50-55 lakh bales (each of 170 kg). On top of it we expect a normal monsoon and timely onset. Also, the acreage is likely to go up; these are the factors not supporting any bullish sentiment,” said Indian Cotton Federation President J Thulasidharan.

The trade estimates a 10-12 per cent increase in cotton area this kharif season. “However, with such prices, there will be an encouragement to farmers to grow more cotton. But the current rally lacks fundamental support and will remain short-lived," said Arun Dalal, a cotton expert from Ahmedabad.

As per the initial estimates, cotton sowing in India has been estimated to increase by 10-12 per cent, while in some pockets, the cotton area may go up by as much as 20 per cent over last year. The trigger for the sharp surge in cotton area is the higher prices as compared to the other alternate kharif crops, such as paddy and pulses.

“International buyers, who were to settle their positions, continued making further positions in Cotton futures for some reasons. This led to the spurt in prices. In the Indian context, due to such higher international prices, our imports will shrink more than the estimated. So, the country may feel the shortage of cotton around July and those holding cotton stocks may get ₹46,000-47,000 per bale. But that would be a very short-term as we expect more acreage this year,” said an official at a cotton export house in Ahmedabad.

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