Higher crop may push for CCI operations, which may result into increased cheap imports

Amid uncertainty on the crop condition and fearing a strong market reaction to trade-sensitive numbers, the Cotton Association of India (CAI) — the apex cotton trade body — refrained from announcing its crop numbers at the Cotton India 2019 conference last week.

The trade, however, believes that a good monsoon across the cotton growing regions spread across multiple States has brightened the prospects for a good crop for the 2019-20 season. The US Agriculture Department (USDA) has projected India’s cotton crop at a record 390 lakh bales (each of 170 kg), way above last year’s output of 312 lakh bales.

The CAI, while maintaining its 2018-19 crop estimate at 312 lakh bales, projected a carry-over stock of 23.50 lakh bales. However, going by the experts’ views, the crop and stock numbers over the years appear to have some statistical calculation error.

It requires decision makers’ attention because the ground reality and the estimates often fail to match. Last year’s decade-low output has failed to create any major impact on the stock position as well as on the prices. This creates a curious case for the trade to understand.

“The crop condition is good and we expect the crop to be around 390 lakh bales. The only concern is that with a higher crop, CCI will begin MSP purchase operations,” said J Thulasidharan, President, Indian Cotton Federation. “Once that begins, the domestic prices will get a lift. But globally there is not much of an increase in consumption as expected. Therefore, if local prices rise, Indian mills will move to buy from overseas and we may see increased imports despite a higher crop,” he said.

Thulasidharan added that the situation in the world’s largest fibre producer is no different from the global surplus production scenario. “With the trade war and slowdown in the global economy consumption across cotton consuming countries would remain flat. Due to these factors, global prices would be below our MSP rates,” he said.

Favourable ground

This global price situation is likely to create a favourable ground for Indian importers.

Notably, raw cotton prices have already started dipping ahead of full-fledged of arrivals. Cotton prices at the Rajkot markets have touched Rs. 3,400 a quintal against the Minimum Support Price (MSP) of Rs. 5,255 for Kharif 2019-20.