Record output, acreage pull cotton prices to lowest levels this year

Cotton prices have fallen to the lowest levels in the current cotton year (October 2013-September 2014), at Rs 33,000-34,000 a candy (356 kg). The fall in prices are being attributed to several factors such as zero forwards on exports, record-high acreage as well as cotton production, along with dull demand from mills.

According to sources, going forward, Cotton Corporation of India (CCI) might have to buy the commodity from cotton growers at minimum support prices (MSP), which works out to Rs 35,000 a candy for long staple and Rs 32,500 a candy for medium staple.

In this, the lowest prices of the Shankar-6 variety of medium staple cotton is in Gujarat at Rs 33,500 a candy, down from Rs 38,000 a month ago.

“Mills are yet to plan bulk buying since they are still carrying huge inventory of the previous year’s cotton. Also, the arrival this year is set to be delayed by a month or two. Hence, low demand coupled with anticipated high supply is driving down cotton prices to the lowest levels of the year,” said J Tulsidharan, president, Indian Cotton Federation (ICF).

Breaking all previous records, this year, the area under cotton cultivation in India has reached a record high of 12.5 million hectares. Last year, the area under cotton cultivation stood at 11.7 million hectares.

The all-time high cotton acreage is all set to push India’s cotton production to a new level. In fact, cotton traders and ICF estimate a record harvest of 40 million bales (one bale is 170 kg).

However, arrivals are expected to delay by a month or two due to delayed monsoon, resulting in delayed sowing wherein bulk arrivals are expected by December. Currently 35,000 bales are arriving daily in various mandis in many parts of the country. The arrivals are likely to pick up to 200,000 bales a day after Diwali.

“There have been almost zero forward deals with exporters this season. With China reducing its imports from India and international prices still being lower than the domestic prices, demand for cotton in terms of exports will also be low. This anticipation is also resulting in fall in cotton prices and it will be the lowest in last one year,” said a Mumbai-based cotton trader.

Also, while bulk arrivals are awaited, demand from mills is also low owing to lack of quality cotton, said K Selvaraju of South Indian Mills Association.

“The initial arrivals have too much moisture and are not of spinnable quality. Add to that, mills already have inventory from last season's stock. Hence, demand is low and is expected to remain so for another month, because good quality cotton is only expected to come in by late November or early December,” said Selvaraju.