Cotton prices slip below Rs 31,000 per candy

Led by weak demand and high supply, cotton prices have been constantly on decline during January 2015 with prices now being registered below Rs 31000 per candy of 356 kg. During January so far, cotton prices have fallen by more than Rs 2,500 per candy to stand at Rs 30,500 per candy.

Traders said that weak export as well as slow buying from domestic mills are the main reasons for constant price fall in cotton in this season. Moreover, rumors of cotton selling by Cotton Corporation of India (CCI) also seemed to have put pressure on cotton prices.

"At a time when the country has seen record production of cotton, exports have been very dull mainly because of poor demand and business from China this year. Moreover, higher stock expectation has limited the demand from mills. All these factors have led to fall in cotton prices," said Arvind Patel, vice president of Saurashtra Ginners' Association (SGA).

After almost remaining stable for sometime at Rs 32,800-33,500 per candy levels, cotton has moved down to Rs 30,500-30,700 per candy.

Government agencies as well as various trade associations estimate a record high output this year, citing good rains and favorable climatic conditions in the major cotton growing regions.

The Cotton Advisory Board (CAB) has estimated production at 40 million bales and also increased its estimate for last year's production to 39.8 million bales from 39 million bales as on July, 2014. On the other hand, Cotton Association of India (CAI) and Indian Cotton Federation have projected over 40 million bales of cotton supply for 2014-15 marketing season.

"Domestic mills are buying only as per their requirements as they don't want to risk by creating inventory because of weak international demand. Moreover there is some financial crunch due to dull market this year," Patel said.

To protect farmers from the sharp decline in domestic prices, CCI started the procurement operation at the minimum support price (MSP) from October 2014. Till first week of January, CCI has procured about 4.1 million bales of cotton, highest in last six years, from key growing states like Telangana, Andhra Pradesh and Maharashtra. It expects to buy about the same quantity during the remaining period of the procurement season.

Arun Dalal, a leading traders and exporter from Ahmedabad said, "It is lowest price after 2009-10 and market is almost at its bottom. At current price level, fresh demand may come to market that may hold the downfall."

Coupled with falling prices, arrival of cotton has also decreased across the country in January 2015 from 225,000 bales to 185,000 bales per day. According to traders, farmer restricted the selling of raw cotton or kapas due to lower price of the commodity. Kapas prices have declined to Rs 780-810 per 20 kg in Gujarat as against Rs 835-860 per 20 kg at the beginning of the month.