Weak demand clouds outlook for cotton crop

With harvest season approaching and cotton growers hoping for ‘handsome returns’ this kharif season, there is unpleasant news coming from the other end of the world, which influences the price movement in Indian market.

The International Cotton Advisory Committee (ICAC), in its cotton summary for October 2019, noted that global production — projected at about 26.8 million tonnes — is expected to slightly outpace global consumption, projected at 26.5 million tonnes, for the 2019-20 year, which began from August. This is likely to put downward pressure on global cotton prices — a trend that may affect India’s cotton market too.

This news comes at a time, when the cotton trade in India is looking at uncertain times with crop damage fears in the key growing regions of Madhya Pradesh and Gujarat, where heavy rainwater has flushed the cotton fields. “This calamity will disturb market sentiment and jack up prices at the beginning of arrivals. This time, arrivals are already delayed by about 20-25 days and we are looking at poor quality in the first picking due to the extended monsoon,” said a cotton trader from Mumbai.

The developments on Indian cotton fields portray a faint possibility of encouraging cotton exports from the country this year. Additionally, with an almost empty supply pipeline from the end of last year, cotton imports are likely to continue for some more time.

Amid the ongoing US-China trade war, India failed to benefit due to higher local prices of the fibre. A US Department of Agriculture (USDA) September 2019 report on the cotton market revealed that the US’ share in China’s total cotton imports fell to 18 per cent in 2018-19, down from 45 per cent in 2017-18. But that of India also shrank to 13 per cent from 22 per cent, primarily because of China limiting imports outside the WTO TRQ. “India’s continual increase in its domestic Minimum Support Price coupled with lower world prices limits its cotton competitiveness,” the USDA report noted.

Cotton Association of India (CAI) data showed that India’s cotton exports were 36 per cent lower, at 44 lakh bales, till September 30, while its imports almost doubled to 29 lakh bales.

Tepid growth seen

On global consumption, ICAC estimates that “even the major cotton consuming countries may see tepid growth in consumption, at about 2 per cent over last year”.

“We fear the quality and the crop size may not be as expected due to damage instances. If there is a dent in the crop size, our prices will go up and we will become non-competitive in the overseas market,” said a trade source. CAI will release cotton crop numbers for the current season on October 15.

Cotton prices in India hovered around ₹41,900 per candy (each of 356 kg) for the 29mm variety of ginned cotton. Cotlook A Index prices quoted at 71.80 cents at the beginning of this week.

ICAC noted that global cotton prices have ruled lower because of the high stocks and low demand for exports. “With plentiful supplies and weak export demand, the price on the Cotlook A Index has dropped to its lowest point since 2016,” ICAC noted.

For 2018-19, CAI estimates India's cotton output at a decade low of 312 lakh bales (each of 170 kg). Cotton acreage last year stood at 121.05 lakh hectares. This year, acreage was 127.67 lakh hectares as on September 27, according to the Union Ministry for Agriculture. The first advance estimate shows the cotton crop size to be 322.7 million bales.

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