The Southern India Mills Association (SIMA), the apex body of spinning mills in South India, has asked farmers to dispose of cotton stocks held back by them before the monsoon begins to fetch better prices. “It will be difficult to gin cotton during the rainy season,” said Ravi Sam, SIMA Chairman. Besides, the quality of cotton might deteriorate during the rainy season and get lower prices. 

However, he said cotton prices are expected to prevail at current rates until June-end. 

Why have cotton prices fallen in recent times  Why have cotton prices fallen in recent times  
Cotton crop estimate

Cotton prices, which were ruling at ₹62,000 a candy (356 kg) on May 2, are now quoting at ₹56,500. Kapas (seed cotton) prices have plunged to ₹7,000 a quintal against over ₹₹8,200 from December 2022-February 2023. Prices are, however, 11 per cent higher than the minimum support price of  ₹6,080. 

Also read: North India cotton acreage may remain at last year’s levels

According to the Committee on Cotton Production and Consumption, the cotton crop this season is estimated at 337 lakh bales. Of this, 272 lakh bales have arrived in the market. About 10 lakh bales of summer cotton, grown in Tamil Nadu and a few other States, are likely to arrive over the next few months, he said. 

During the current cotton season to September, cotton arrivals as of March 31 were 60 per cent lower. Over the last several decades, 85-90 per cent of the crop usually arrives by March 31.

47% crop held back

Farmers held back their produce this year as prices were abnormal last season. Expecting better prices, farmers stored their produce on their terraces and in their backyard. “Farmers and kapas traders held back over 47 per cent of the cotton hoping for a rise in prices like last year,” Sam said.  

Prices of kapas (seed cotton) prevailed around ₹9,000 a quintal during the peak arrival season from December to February in the 2021-22 season despite daily arrival being 1.32 to 2.2 lakh bales (170 kg). Prices exceeded ₹11,000 during April 2022.  

On the other hand, daily cotton arrivals were one of the lowest in the current season at 1-1.3 lakh bales. During the same time, global cotton prices have dropped below 100 US cents a pound, triggering a panic in the cotton value chain. 

Shortage likely during season-end

On the other hand, the SIMA Chairman urged the Centre to permit import of extra long staple (ELS) cotton at zero customs duty. Currently, cotton imports attract 11 per cent duty. Last year, ELS cotton imports were allowed at zero duty between April-October.  

With the global cotton season beginning in August, global cotton prices are expected to be stable in the coming months.  “However, the industry may face a shortage of cotton during the end of the season and start of the next season until the new cotton crop arrives in the market,” he said, justifying his plea for imports at zero customs duty.  

Also read: CAI cuts cotton crop size to 298.65 lakh bales

The SIMA chief said Indian cotton trade is taking advantage of the 11 per cent Customs duty to keep domestic prices 8-15 per cent higher and this was the root cause for the substantial drop in cotton textiles and clothing exports from India.  

Reasons for the price crash

Referring to the fall in prices, he said demand for cotton nosedived from April 2022 due to inflation in major importing nations. Cotton textiles export declined to $143.87 billion in 2022 from $154 billion in 2021 and $170 in 2020. “All the major cotton textile exporting countries such as China, Vietnam, Türkiye and the US recorded lower exports, while Pakistan could sustain its export level mainly due to duty free access in key markets,” Sam said.  

The total Indian textiles and allied products export, which was $42.9 billion during 2021-22, dipped to $35.4 billion during 2022-23 as a result of slack demand, he said.  

Also read: Indian cotton exports may plunge to 19-year low

Cotton yarn exports dropped by almost 50 per cent, while cotton fabrics and made-ups exports declined by 17 per cent and raw cotton shipments dipped 73 per cent during the year 2022-23 compared with 2021-22, the SIMA Chairman said in a statement. 

He said the production capacity across the cotton textile value chain dropped by 30 per cent resulting in the demand for home-grown cotton dropping, leading to a significant drop in cotton prices this month.