MCX cotton futures witnessed a smart recovery last week, gaining by more than 5 per cent on account of renewed buying by millers. Average daily arrivals are much lower compared to the corresponding period last year due to late harvesting. Moreover, millers have increased their buying activities in order to pile up the superior quality of fibre, which fuelled the uptrend in cotton. The Cotton Association of India has forecast total production for year 2016-17 at 345 lakh bales of 170 kg each, compared to 337.75 lakh bales last year.

Despite the higher production outlook, overall cotton production for 2016-17 is likely to be much below the five-year average production of 371 lakh bales, prompting stockists to expand their buying activities. In the meanwhile, demonetisation of ₹500 and ₹1,000 notes by the government saw most of the market yards in Gujarat remain closed due to mounting payment issues. Furthermore, upward revision in Indian cotton export forecast made by USDA in its recent monthly supply and demand estimation report also bolstered prices.

The USDA raised its export forecast for India from 3.9 million bales to 4.2 million bales (53 lakh bales of 170 kg each) keeping production and consumption estimation at 27 million bales and 24 million bales of 480 pounds each, respectively. However, harvesting activities are likely to speed up in major cotton growing regions, which may restrict major gains in prices in the coming days.

Outlook In the week ahead, cotton prices are expected to correct initially and later resume the uptrend on renewed buying interest from millers.

The writer is Head – Commodity Research, Karvy Comtrade

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