Cotton Corp begins procurement in North India

Rutam Vora, Vishwanath Kulkarni Ahmedabad | Updated on October 10, 2019

Raw cotton ruling at Rs 4,700- Rs 5,250 a quintal, well below Centre’s MSP of Rs 5,550

As cotton prices come under pressure at the start of harvest, state-run Cotton Corporation of India (CCI) has begun purchases of the fibre crop in Rajasthan and Punjab. However, CCI’s purchases are in small quantities as the moisture content in the cotton being brought into the market is very high.

P Alli Rani, Chairman and Managing Director, CCI, said the procurement had started two days ago, in Punjab and Rajasthan. “However, it is a meagre quantity. Farmers are being advised to let their cotton dry before they bring it to the market as CCI can only purchase fair average quality (FAQ) cotton with moisture content between 8 per cent to 12 per cent ,” Alli Rani told Business Line.

Prices of raw cotton or kapas are ruling between ₹4,700 and ₹5,250 per quintal, depending on the quality and the moisture content. However, the prevailing prices are much below the minimum support price (MSP) of ₹5,550 per quintal announced by the Centre.

The higher cottonseed prices are supporting fibre prices in North India to some extent, said Rakesh Rathi, a cotton ginner and trader in Abohar. But for the cottonseed prices, cotton prices could have ruled lower than the current levels.

Cottonseed price impact

Prices of cottonseed, which is used to extract oil and the oil cake used as animal feed, are ruling between ₹3,250-3,500 per quintal. A lower cotton crop last year had led to a flare-up in cottonseed prices. Cotton output had touched a decade low of 312 lakh bales (of 170 kg each).

With farmers planting cotton on a larger area of 127 lakh hectares this year, output is set to rise. In the first advance estimates, the Agriculture Ministy pegged cotton output at 322.7 million bales.

“It’s not just the increase in area, but the yield is also likely to be higher this year on account of good rains,” said Ramanuj Das Boob in Raichur. Boob sources cotton for multinational companies. He fears that prices may come under further pressure next month when arrival pressure builds up.

Currently, daily market arrivals are at around 40,000 bales in North India, while in Telangana they are at around 2000-3000 bales. In Maharashtra, the daily arrivals are at around 3,000-4,000 bales and in Karnataka around 1,000 bales, trade sources said. Arrivals are set to pick up by the end of October or early November.

Currently, CCI has deployed procurement officers at 368 centres in the cotton growing areas of the country. However, kapas is yet to start arriving in the market at several of these centres.

In certain States, though kapas is being brought to the market in small quantities, it has high moisture content, Alli Rani said.

Trade sources said cotton prices are currently hovering at around ₹35,000- 40,000 a candy (each of 356kg). "Also, with this rate, the crop that is arriving is rain-damaged. So, it is not useful for mill consumption. There is complete uncertainty in the market about the crop size and the extent of damage. Even now there are reports of rains in parts of Maharashtra,” said a source.

Better quality from November

However, industry sources believe that good cotton will start arriving only by the first week of November, with a delay of 40-45 days. “We believe there will be clarity on the crop situation only by the month-end. CAI will have a meeting on October 15 to assess the crop,” said Atul Ganatra, its President.

Farmers in Gujarat and Maharashtra are expecting heavy damage to their crop due to waterlogging in the fields and continuing rains. Parts of South Gujarat and Central Gujarat saw fresh rains even as the IMD predicted withdrawal of the monsoon from Thursday. This has led to increased moisture in the crop to the tune of 20-50 per cent in certain cases.

“CCI has begun the procurement. But they look for a moisture content of 8-12 per cent, whereas in the current crop, the moisture content is much higher and there is the likelihood of increased instances of disqualification for procurement,” said Ashwani Jhamb, a cotton expert and director at the Indian Cotton Association.

On the cotton crop outlook, Jhamb stated that there would not be much impact on the overall crop size of cotton as there are many new cotton cultivation areas emerging across the country, which will compensate for any shortfall in output in the cotton heartland. On the one hand, there was excess rainfall in most cotton growing regions, while on the other, there is also damage to the crop due to water-logging. The price outlook remains uncertain amid lack of clarity on the crop size.

Last year, CCI had procured 10.70 lakh bales under MSP. If prices remain lower than the MSP in all the States then it may procure more cotton than last year, Alli Rani said.

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Published on October 10, 2019
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