Indian govt purchase of cotton to hit US export: USDA.

"In order to protect their farmers' income, China and India have dramatically increased government purchases to drive-up domestic farm prices. Although there have been no official statement... regarding how these stocks will be managed, their disposition will certainly affect the US exports and prices," the US Department of Agriculture (USDA) said in a report.

If significant portions of stock are held off the market, demand could shift to other suppliers, including the US. However, release of these stocks could further "dampen" demand, particularly for US cotton, it noted, adding that the the disposition of stock adds a new element of uncertainty and potential price volatility to global cotton markets.

USDA said that India and China are on track to acquire nearly 25 million bales of government-controlled stocks, in the next couple of months.

Quoting Indian textile industry sources, the US body said Cotton Corporation of India (CCI) has authorisation to buy up to 11.7 million bales, half the 2008 crop. CCI has bought about 3.6 million bales, 40 per cent of the cotton sold by farmers to date.

While China has already purchased over 7.3 million bales of the 12.5 million it intends to buy. According to industry sources, China already holds 4-6 million bales of state reserves carried over from the previous season, it said.

Pointing at the possible impact of the government purchases, USDA said, "These policies raise the question of how many government-stocks will be carried over into the next marketing year, and what impact the policies will have on production in 2009 in these countries."

According to USDA, India's cotton production is estimated to be down by 4.16 per cent at 23 million bales in 2008-09, while in China, fibre crop output is to remain unchanged at 36.5 million bales from previous year.