Cotton prices to dip further

Kolkata: With the ongoing trade war between China and the US still continuing, cotton prices have taken a hit of more than 32 per cent in the international market over the last one year. And the crash in prices in the global market has reflected in the domestic market, with the Indian futures market recording a 16 per cent fall in cotton prices. The US is the world's biggest cotton exporter and China, its bigger consumer. The ongoing trade tussle has hit hard the cotton market across the world, including India, which is the world's largest cotton grower. Sector analysts are apprehensive that cotton prices in the Indian market may crash further and chances of recovery are low.

This has to be seen in light of India's output and consumption figures. Going by the Cotton Association of India (CAI) statistics, domestic cotton production during the 2018-19 (October-September) season is 312 lakh bales, while the consumption is expected to be 315 lakh bales. There's 33 lakh tonne of leftover stock, while 14.5 lakh bales have been imported. CAI suggested that the total cotton supply in the country during the season ending September 30 may remain 376 lakh bales, which would include 33 lakh bales of remaining stock, 312 lakh bales produced and 31 lakh bales imported. However there are strong possibilities that imports would actually drop.

Now put these figures side by side with cotton sowing area. As per the Union Agriculture Ministry, the cotton sowing area has increased by 5.35 hectare in this season against last year. Some 115.15 hectare has been sown so far versus 109.79 hectare by this time last year.

"Cotton sowing across the country has reached 121.6 lakh hectare as on August 16, which is up by 6.5 per cent from last year. If we believe the impact of recent pest attack on Maharashtra cotton crop to be nominal, we are likely to have a good increase in cotton output this season. In addition, limited demand from overseas market, surplus production last year and trade spat between US-China will keep cotton prices in domestic market under pressure in coming weeks. Hence, considering new crop supply pressure, weak cues in global market and higher imports will keep cotton prices under pressure for the near future. New crop of cotton is likely to make a grand entrance in physical market in next one or two weeks," said Kotak Securities’ Commodity Research Insight report .

It added, "As China seems committed to avoid agriculture imports from the US, net export sales from the US have again nose-dived by three-folds during the second week of August... We expect cotton to trade range-bound with negative bias for near future."

Meanwhile, cotton sector is quite bullish on the exports front. Overall cotton exports will easily cross the CAI's estimate of 46 lakh bales. The sector is seeing renewed buying interest from countries such as Iran, Vietnam and Bangladesh, though quantities are smal.