The recent rise in cotton prices is driven by fundamental reason with the demand exceeding the supply and the entire clamour over demand for suspending the futures trading over price speculation is completely prejudiced, said the Madhyanchal Cotton Ginners and Traders Association.

In a letter to Prime Minister’s Office and Piyush Goyal, Minister of Commerce & Industry, Consumer Affairs & Food & Public Distribution and Textiles, the Association said there has been a clamour demanding suspension of cotton futures by a section of value chain participants who do not want transparent pricing and thrive of price opacity.

Price discovery

With half of the fibre produced in India is yet to arrive in the market, farmers would be the most affected by any move to ban futures trading. Over the years, farmers have started hedging on the futures market which had improved their profit margin.

Farmers are getting good price for the produce after several years and any move to reduce import duty would impact their realisation making it difficult for them to realise the cost. In absence of futures contract, market price discovery will be a big issue for ginners and will lead to huge variations in prices across the trade. This in turn will be detrimental to scores of small ginners operating across the country, it said.

In December, capital and commodity markets regulator SEBI had suspended futures and options trading in a host of agriculture commodities including chana, mustardseed, soyabean and its derivatives, crude palm oil, moong, paddy (Basmati) and wheat for one year. Ever since, vested interest have gained strength demanding ban on other agri- commodities also.

This year, adverse weather condition at the time of cotton harvest had impacted yeild and impacted production. Moreover, the low carry-over stocks and brisk demand had boosted prices, said the letter.

The demand has remained buoyant on the back the recovery in spinning industry after the impact of Covid pandemic and shortage of cotton across the global including the US, Brazil and China.

Every big cotton producing and consuming countries have a hedging platform for better price discovery and risk management. Suspending such a futures platform will separate India from rest of the world, said the Association in the letter.

India is the second largest consumer of cotton in the world after China with strong demand for yarn export and domestic textile industry. Typically, mill owners sell their yarn in advance to hedge their trade using cotton futures contract on commodity exchanges.

In the event of ban on futures trading, it will be difficult for mill owners to arrive at their raw material price in a transparent manner, it said.

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