Cotton price at multiyear low as demand dries

Cotton prices continue to fall, amid higher arrivals of new crop when demand is drying.

On Tuesday, it reached a 42-month low of Rs 8,436 a quintal in the benchmark Shankar-6 variety. In futures trade on the Multi Commodity Exchange, it trades at Rs 14,400 a bale of 170 kg, a slight premium to the spot price. A price below this was earlier registered in July 2011.

The price has fallen by almost 10 per cent in a month and 23 per cent in four months, since the new crop started hitting the market. Viral Shah, senior vice-president at Geofin Comtrade, said: “The pressure of arrivals of the new crop when demand is drying is such that in most major centres, prices are below minimum support levels.” Government-owned Cotton Corporation of India has procured five million bales from various centres. In the past two days, it has begun selling a tiny quantity of the procured cotton in the market.

The crop is estimated at 40 mn bales, in line with last year’s crop. However, export of cotton and yarn have slipped significantly, resulting in lower demand. India’s premium over the US price of 58 cents a pound has come down from the earlier nine cents to two to three. At this price, “export demand from China could emerge, which was dormant for many months”, said an exporter.

Viral believes prices are in the process of bottoming out, as he sees some export demand coming in and believes at this low a level, there could be resistance from farmers to sell.