Cotton prices. Indian cotton prices vroom to record high, rule at premium to global rates

The spell of good fortune that saw Indian cotton growers celebrating a sparking Diwali continues into the New Year, too.

Prices skyrocketed to a record of over ₹71,000 a candy on Monday with farmers holding on to their produce as the quality of arrivals has been affected by heavy rains during September-November last year.

Domestic cotton prices are now ruling at a premium to global rates, particularly Intercontinental Exchange (ICE) cotton futures in New York. ICE New York Cotton March futures are currently quoting at 113.67 US cents a pound (₹68,500 a candy). On the Multi Commodity Exchange, cotton for January delivery was quoted at ₹34,700 a bale of 170 kg (₹74,502 a candy). Purchase by multinational companies from the domestic market is also cited as a reason, though not all stakeholders agree on the view.

“Quality cotton is quoted at ₹74,000 a candy. Arrivals are poor as farmers are holding back their produce,” said K Selvaraju, Secretary-General, Southern India Mills Association (SIMA).

“In Rajkot, Gujarat, cotton is quoted at ₹71,000, while in places such as Nashik in Maharashtra, it is ruling at ₹72,000-73,000 a candy,” said a veteran market analyst.

Wild price swings

Raw cotton (kapas) prices in Rajkot have topped ₹10,000 a quintal, while they are ruling in the range of ₹9,300-9,500 in Telangana, where the rates were above ₹9,000 in most of the market yards (mandis).

In Warangal, Telangana, traders quoted ₹9,310 a quintal following moderate arrivals on Monday. In Gujarat markets, raw cotton prices topped a record ₹2000 per 20-kg maund (₹10,000/quintal) on December 31. Jamnagar APMC registered cotton prices as high as ₹10,555 per quintal for quality cotton.

At Rajkot market, raw cotton was auctioned at ₹2,010/maund or ₹10,050 a quintal. Trader sources said prices swung widely at the auction touching as high as ₹2,500 per quintal. Average quality cotton was quoted at a lower ₹7,505 a quintal.

On Sunday in Bhiwapur (Nagpur) market yard registered a record high of ₹9,510 per quintal. The modal rate (price at which most trades took place) in all other major markets ruled above ₹9,000 per quintal in Maharashtra on Sunday. Today, the modal rate at Jamner market yard was ₹7,520 per quintal for the hybrid cotton during the first half of the trading.

In Karnataka market yards such as Raichur and Bijapur, kapas prices ruled at ₹10,200 and ₹10,300 a quintal, respectively.

Ruling at a premium

Cotton prices have begun to surge after a lull two weeks ago. Prices are 80-90 per cent higher than what farmers got last year. Cotton has been ruling at least 70 per cent higher than last year since the beginning of this season on October 1 in line with the global trend.

Cotton seed prices are also strong at ₹3,800-4,000 per quintal, lending support to the fibre prices.

Globally, cotton prices are 45 per cent higher than last year on firm demand and tight supplies arising out of shipping woes. Inventories at the Intercontinental Exchange (ICE) monitored in depots monitored by the US are down 99 per cent this year.

Indian cotton is now ruling higher than ICE New York Cotton March futures that are quoted at 113.67 US cents a pound (₹68,500 a candy). On the Multi Commodity Exchange, cotton for January delivery was quoted at ₹34,700 a bale of 170 kg (₹74,502 a candy).

“Indian prices are ruling at a premium of 5 cents since multinationals are hedging their risk in Europe futures. Going forward, the premium could rise to 20-25 cents,” said Anand Poppat, a Rajkot-based trade in raw cotton, yarn and cotton waste.

Weather impact

In India, prices have skyrocketed mainly since the quality of cotton has been affected by heavy rains during September-November. “The problem is that the RD value of the fibre has got affected,” said Poppat.

The RD value indicates how bright or dull the cotton fibre will appear. Cotton with better RD value commands a premium, while with lower value leads to yellowish colour of the fibre. “Spinning mills prefer the best grade,” the Rajkot-based trader said.

Spinning mills are currently holding 1-2 months stocks, he said. But SIMA’s Selvaraju said they had less than one month stock.

“Total arrivals till now are 120 lakh bales. Mills have bought 90 lakh bales, while 10 lakh bales have been exported. The rest is in the pipeline,” he said, ruling out the possibility of mills or others hoarding stocks.

Sellers reluctant

“The biggest reason for the surge in cotton prices is that the crop is smaller this year. On the other hand, demand from spinning mills is higher. We are not seeing any shift to manmade fibres from cotton and yarn makers seem to be absorbing the hike,” said Vinod Ahuja, a cotton grower from Punjab.

“Ginned cotton prices have increased to ₹75,000 per candy for 29.5 mm. Even at these prices, sellers are reluctant to sell due to higher costing,” said Ramanuj Das Boob, sourcing agent for domestic and multinationals in Raichur.

According to the Cotton Association of India, production of the natural fibre this year is estimated at 360.13 lakh bales against 353 lakh bales a year ago. It has projected domestic demand at a flat 335 lakh bales.

Crop estimates

The Committee on Cotton Production and Consumption, a body set up by the Centre comprising all stakeholders in the country, has projected the output at 362.18 lakh bales. It has projected the consumption at 338 lakh bales.

The trade is yet to come to the conclusion of actual crop estimates. Picking has been completed in Madhya Pradesh, Punjab, Haryana and Rajasthan, while it is in progress in other growing States.

Though the record prices have cheered up farmers, poor productivity on untimely rains, cultivation of unauthorised seeds and pink bollworm attack in Telangana and parts of Maharashtra have lowered their hopes.

Market players see cotton prices rising further, even as high as ₹80,000 a candy, while traders in Nagpur and Vidarbha regions expect prices to top ₹10,000 per quintal over the next few days.

Globally, prices have gained also since global production is projected to be lower this season (October 2021-September 2022) by 266,000 bales mainly in view of Pakistan’s output dropping by 133 lakh bales, the US Department of Agriculture has said. In addition, global ending stocks are estimated to be 160 lakh bales lower.

(With inputs from KV Kurmanath, Hyderabad; Rutam Vora, Ahmedabad; Radheshyam Jadhav, Pune; Prabhudatta Mishra, New Delhi; Vishwanath Kulkarni, Bengaluru; and Subramani Ra Mancombu, Chennai)

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