Indian cotton growers hold back produce as prices top ₹60,000 per candy

Indian cotton growers are holding back their produce again after prices on the Intercontinental Exchange (ICE), New York, surged to a 1-½-year high of 107. 3 cents (₹70,200 per candy of 356 kg), but mills and traders are unfazed as there are ample stocks.

However, the ending stocks this season may be one of the lowest in recent years, particularly if demand for exports picks up in the wake of prices turning competitive in the wake of the rise on ICE.

“Cotton prices saw an upswing during the last two weeks. Cotton futures for May (on ICE) increased to 99.57 cents per pound (₹65,150/candy), finally settling at 96 cents level  (₹62,824/candy). However there is no panic buying,” said Maj Gen (Retd) OP Gulia, CEO SVP Global Textiles Ltd, a company listed on the Bombay Stock Exchange. 

The price rise has resulted in arrivals dropping to around 80,000 bales currently from about 1.2 lakh bales a fortnight ago. “Farmers should be holding at least 100 lakh bales with them currently,” said Anand Popat, a cotton, yarn and cotton waste trader based at Rajkot, Gujarat. 

Up ₹1,000/quintal in 15 days

On Thursday, May ICE cotton contracts ruled at 96.33 cents a pound (₹63,030/candy). Prices have tended to cool a little this week after the US reported 69 per cent lower sales of cotton this week. 

On the Multi Commodity Exchange, the natural fibre was quoted at ₹64,900/candy) for May contracts. In Rajkot, lint or processed cotton was quoted at an average of ₹61,250 per candy.  The Cotlook A Index, a benchmark for the natural fibre, is currently at 101.70. 

At the Rajkot agriculture produce marketing committee (APMC) yard, the modal price (the rate at which most trades take place) of kapas (unprocessed cotton) was ₹7,750 a quintal against the minimum support price of ₹6,620 for the medium staple variety. 

Prices are up over ₹1,000 over the past fortnight. On NCDEX, kapas (unprocessed cotton) for delivery in April ended at ₹1,647.5/maund of 20 kg (₹8,237.5/quintal). The spike in the prices saw the Southern India Mills Association urging the mills not to resort to panic buying. 

No panic

Gulia said there is no panic buying by spinning mills. “The main reason is fresh crop arrivals are over and supply has become slow. Good quality cotton has been stored for export purposes,” he said. 

Domestic spinning mills have not been affected despite speculative and volatile movement on ICE cotton futures. “But it has resulted in arrivals slowing down and sales are tight forcing spinners to buy around ₹60,000-61,000/candy levels. The Cotton Corporation of India (CCI) is selling at around ₹62,300-63,000 a candy, whereas multinational trading firms are offering at ₹64,000-65,000,” said Ramanuja Das Boob, who sources cotton for domestic mills, exporters and multinationals from Raichur in Karnataka. 

“Farmers were bringing a good amount of cotton as long as prices were in the range of ₹55,000/candy. After prices hit ₹60,000 they have slowed down holding back as there is no pressure on them,” said Popat.

ICE futures are witnessing huge speculation resulting in prices rising. According to the US Commodity Futures Trading Commission weekly commitment of traders report, managed money funds added 7,900 contracts taking the net long position to 94,038 by February-end. However, net shorts during the same period were up at 134,264 contract, an indication of the speculation.   

Growers turn conservative

According to Gulia,  a little dip in production due to rains in September 2023 and the US Department of Agriculture’s February WASDE report projected a reduction of 355,000 bales in the 2023-24 world cotton production, primarily due to cuts in Australia and Benin, lent support to the surge. 

Buying by China after the New Year Holiday and Turkey from the  biggest  US Cotton also helped the uptrend, he said.

Though the Cotton Association of India (CAI) has pegged the cotton crop at 294.10 lakh bales (170 kg each), the Ministry of Agriculture and Farmers Welfare last week estimated the crop this season at 323.11 lakh bales against 343.47 lakh bales last season. 

“In India, there is no cotton shortage but farmers have turned conservative by holding on. Ginners and stockholders are unable to exert any pressure on the market,” said Das Boob. 

The  CCI holds nearly 32 lakh bales and of this, it has sold some 1.5 lakh bales. “Mills are buying from CCI for their needs since they also get a 60-day period to pay and the quality is also good,” Das Boob said. Multinational trading houses are reportedly holding around 15 lakh bales, traders said.

Price comfortable now

Gulia said mills are yet to start operating at full capacity as the yarn market has not picked up yet. However, they are signs of pick up in Bangladesh since October 2023. 

Das Boob said yarn prices have increased by  ₹15-20 following the cotton price spurt but buyers may not be able to digest more hikes. “The current prices of  ₹60,000-61,000/candy seems comfortable for everyone,” he said.

Popat said as long as CCI sells, any sharp rise in domestic cotton prices could be capped. “But it will depend on the selling price of the corporation. I feel there are chances for prices to rise by another  ₹1,000-2,000,” he said.

However, prices may not rise beyond  ₹65,000/candy, the Rajkot-based trader said, adding that export of cotton could be between 25 and 30 lakh bales. “Indian cotton is now at a discount to global cotton. Hence, there is some demand,” he said.

‘On-call sales’

Gulia said he expected prices to be in the range  ₹62,000-65,000 with marginal improvement in demand.

“Currently, 19 lakh bales have been exported and another 3.-4 lakh bales contracts are pending,” Popat said.

A clear picture will emerge on how traders decide on the short covering they have done through “on-call sales” when  a buyer purchases cotton from a seller or speculator without fixing the price. Popat said since the ending stocks could be lower this season, no one is sure how prices will behave post-July.

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