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Cotton Prices Drop As Arrivals Flood Markets, Mills Go Slow On Buying.

Date: 05-12-2020
Subject: Cotton Prices Drop As Arrivals Flood Markets, Mills Go Slow On Buying
Cotton prices in India have dropped by Rs 200 per candy (356 kg each) as arrivals begun flooding the markets and spinning mills cut down purchases.

“Daily arrivals have increased to 2.5 lakh bales (of 170 kg each). Till November 30 from October 1, arrivals would have been 85-95 lakh bales,” Cotton Association of India (CAI) president Atul S Ganatra said.

This year’s arrivals estimate compares to arrivals of about 55 lakh bales during the year-ago period.

The reason for the higher arrivals is that the Cotton Corporation of India (CCI) has been procuring a good quantity from the market this year. Since the CCI procures at the minimum support price (MSP), farmers are eager to sell to it, Ganatra said.

According to a Press Information Bureau release, CCI had procured 32.85 lakh bales of cotton till December 2.

on (kapas) this season (October 2020-September 2021). Thanks to CCI procurement, kapas prices almost touched Rs 6,000 a quintal on November 23 before declining. Kapas is selling at around Rs 5,215-5,405 in Gujarat’s Rajkot district.

In Maharashtra’s Akola market, prices rose to Rs 5,725 before slipping to Rs 5,684 during the same period.

Kapas prices have declined after cotton lint prices dropped from around Rs 42,500 a candy to Rs 40,500 currently.

In the global market, cotton prices ruled lower on December 3 at 71.25 cents for March contracts on concerns over US ban on a Chinese producer for using child labour. Worries over the second wave of novel coronavirus are also keeping a leash on the market.

According to online platform Trading Economics, cotton prices gained a meagre 0.4 percent year-or-year as the textile industry has been hit by the pandemic.

“CCI is purchasing at least 50 percent of the arrivals in most markets. In some markets, it is purchasing even more. This has encouraged farmers to bring more cotton to markets,” said Anand Poppat, a Rajkot-based trader of raw cotton, yarn and spinning waste.

Farmers in Maharashtra rushed to the markets with their produce because they feared another shutdown due to coronavirus, he said. The trend was the same in other parts of the country too, barring Saurashtra in Gujarat.

“Spinning mills have slowed down their purchases as they have 30-45 days cotton stocks with them. Enquiries for yarn have also slowed,” Poppat said.

Ganatra said the arrivals were in tune with CAI’s cotton production estimated of 356 lakh bales this season against last season’s 360 lakh bales.

In its first advance estimate of commercial crops for 2020-21 season (October-September), the agriculture ministry pegged cotton production at 371.18 lakh bales.

The CCI could be carrying at least 100 lakh bales of cotton, including about 60 lakh bales carryover stocks from last year.

CCI has fixed a target of procuring 125 lakh bales of cotton this season but Ganatra said that going by its procurement pace, it could end up buying 150 lakh bales.

“The problem for CCI now is that while its purchases have increased, sales have slowed down as buyers await a drop in prices,” said Poppat.

He estimated that at least 150 lakh bales were lying in stock in various parts of the country, including with the CCI, while the CAI president pegged it at 145 lakh bales. The stock is in addition to what the growers are holding.

In view of the price fluctuation, cotton exports, too, have slowed down.

“Exports slowed after prices increased from Rs 38,000 to Rs 41,500 a candy,” said Ganatra.

“China, one of the main buyers, is waiting for the prices to drop. But exports to Bangladesh and Vietnam are continuing,” Poppat said, adding that Indonesia and Turkey were also buying Indian cotton.

Ganatra said India sells its cotton at 5-7 percent discount to global prices. But since Indian prices are hardly 5-7 percent higher than global prices, there was no export parity.

The CAI president said it would be tough for Indian exporters to ship the targeted 60 lakh bales this season against 50 lakh bales exported last season.

“At least one lakh bales are exported every week currently. Till November 28, 18 lakh bales have been exported,” said Poppat.

If the exports target is not achieved, then it could put pressure on the domestic market, Ganatra said.

It will also result in the carryover stocks from this season being higher than the estimated 87.50 lakh bales. This is against 107.5 lakh bales carryover stocks last year.

Carryover stocks are higher as the textile industry had to shut during the lockdown announced. The textile industry resumed operations fully only after September.


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