India's Crucial Cotton Exports May Trump Forecasts.

India's cotton exports, which the head of the world's top merchant has said will be crucial in setting global prices, could prove far higher than has been thought, thanks to less restrictive trade curbs.

Cotton shipments from the second-ranked producer of the fibre will soar by 24% to 6.2m tonnes in 2011-12, US government attaches in New Delhi said – a figure farm from the flat performance outlined by the US Department of Agriculture's official forecast.

The rise in shipments reflects an assessment that Indian authorities will be keener to permit shipments, which are highly regulated, than in 2010-11, when they limited exports in an effort to bolster domestic supplies, and keep domestic cotton prices in check at a time of record world values.

The extent of India's exports will play a key role in dictating world prices, representing the key uncertainty over supplies of the fibre, Joe Nicosia, the chief executive of cotton giant Allenberg Cotton Co, told a conference in July.

'Strapped for funds'

The USDA attaches, whose estimate puts India on track for its third largest exports ever, said India's government would be keener to encourage shipments this time to avoid a build up in domestic inventories.

Use by the country's own ginning and spinning industries has dropped, falling victim to the financial hardship caused by the run up, and subsequent tumble in cotton prices earlier this year, which left many firms "strapped for funds".

"Reduced access to capital, coupled with what are reported to be significant stocks of yarn, much of which were produced with high-priced cotton, could lead to weak domestic cotton demand during the early part of 2011-12," the attaches said in a report.

They estimated that domestic cotton use may be averaging 1.7m bales a month, down 19% from the consumption rate until April.

'Less restrictive'

Meanwhile, prospects for production are good, thanks to raised sowings and "adequate and well-distributed" rains.

Indeed, the attaches forecast India's production hitting 27.3m bales in 2011-12, setting a record by 300,000 bales more than then official USDA estimate.

"A restrictive export policy could leave India with large stocks of cotton at the end of the marketing year," the report said.

In weighing on prices, that could force the government's Cotton Corporation of India to initiate intervention buying to support the market, and farmers' incomes

"It is possible that officials will seek to avoid a situation where the corporation is required to procure large volumes of cotton and run the risk of selling at a loss.

"It seems likely that requirements will be less restrictive than during the past two years."

Source : agrimoney.com