Cotton markets had been falling since beginning of the year after the Corona pandemonium started increasing. While most other edible Agricultural products (mostly which are consumed on daily basis) recovered from the downward trend, cotton failed to show any noticeable recovery as cotton consumption is mainly linked with Industrial/textile demand and with Lockdown problems, industrial/textile demand dropped significantly. But the situation has started improving now and more nations are expected to start their trade/business operations in coming weeks as the lock down eases gradually. Therefore, domestic cotton prices have stabilized in the current month and unable to fall much from present rates. In fact, price trend was slightly firm during the previous week.

Improving export demand prospects is likely to keep prices on upward track in forthcoming weeks. The state-run Cotton Corp of India now plans to export the stocks it had procured in the 2018-20 (Oct-Sep) marketing years to its traditional buyers of Bangladesh, China, and Vietnam. Reports say that the export quantum will be decided as per mutual agreement between India and importing nations. Shipments to Bangladesh takes the least time therefore India has a logistical advantage in exporting to Bangladesh.

The latest U.S. Department of Agriculture (USDA) cotton projections for 2020/21 (August-July) indicate that global cotton ending stocks are forecast at their highest in 6 years. World stocks are projected to rise for the second consecutive season in 2020/21 to 104.7 million bales, 4 percent above 2019/20 and the second largest on record behind 2014/15. As per the USDA world inventory of cotton totaled 106.7 million bales at the end of 2014/15—with China accounting for 62 percent of the total as Government policies there resulted in surplus stock accumulations. As subsequent policies led to fall in China’s cotton inventory, the share of global cotton supplies for other countries increased in recent years. For 2020/21, cotton stocks in China are forecast lower at 35.6 million bales, i.e. 34% total world stocks.

Cotton Corp is the government’s nodal agency for procurement under the minimum support price scheme. The agency has procured around 10.0 mln bales in the 2019-20 (Oct-Sep) season till date. In the 2018-19 season, it managed to buy only 9 lakh bales as spot prices of this fibre crop were more than its support prices during greater part of the season. According to industry experts exports of around 3.8 mln bales (1 bale = 170 kg) have already been shipped in the current season, which started on Oct 1 2019, and another 1.0 mln-1.2 mln bales will be exported by September 2020.

As of now China’s demand is quite healthy for Indian cotton. Demand for cotton yarn export is good as prices have increased from lower levels. Besides, CCI is not in mood to sell its stock at present lower rates. Reduced selling would mean lesser supply burden in the market hence favorable for rise in prices.  Trade estimates also indicate that the inventory available with the mills can last for next 20-25 days only. All mills will be therefore prompted to resume purchases within next couple of weeks. Kapas or Raw seed cotton lying with farmers has been sold out mostly in last 50-60 days and balance stock lies only with large scale farmers who are not in a mood to sell right now, since they are not in need for money as of now.

For India, stocks are projected to reach a record 21.1 million bales (20 percent of the total) in 2020/21, resulting from large crops and reduced demand. As a result of higher production surplus, possibility of rise in exports from India is expected to increase, as lock down restriction eases amongst importing nations. Export prospects have improved of late as prices of Indian cotton are the cheapest in the world in present term therefore making foreign sales economically viable for the country. For 2019-20, the Cotton Advisory Board had estimated India’s exports at 5.0 mln bales, as against 4.4 mln bales in the previous marketing year.

Increase in MSP (Minimum Support Price) is another reason for increasing possibility of price rise from current offers (which are running lower than the MSP currently) as it will force farmers to withhold selling at present. For season 2020-2021 the government has raised MSP of medium staple cotton by Rs 442 to Rs 9,376 a bale. Also, the MSP of long staple cotton was raised by Rs 468 to Rs 9,903 a bale. Due to improving export outlook for the new season the farmers feel they can earn better prices October 2020 onwards when harvested crops start arriving in mandis. As the global economy begins to recover from the COVID-19 pandemic, cotton mill use is also expected to rise according to the latest USDA report.  World cotton mill use is forecast at 114.4 million bales in 2020/21, nearly 12 million bales (11.5 percent) above 2019/20.

China and India continue as the largest users of raw cotton in 2020/21, as per the report and all major countries are forecast to experience a rebound as each country’s cotton spinning industry adapts to the recovering global economy. Global cotton trade is also forecast higher in 2020/21 by the Department of Agriculture in the US, and the Department has projected the global cotton trade at 42.9 million bales, 8 percent (3.1 million bales) above the previous season and the highest in 8 years. Higher trade expectations are projected as mills around the world reopen or increase spinning rates in response to the anticipated rise in global demand for cotton products. Increased supplies for the top exporting countries—the United States, Brazil, and India—are also expected to support higher shipments.

For 2020/21, global cotton mill use is expected to be led by China, India, and Pakistan, with a combined mill use forecast at 70.3 million bales, or 61 percent of the world total. Cotton mill use in China is forecast at 37.0 million bales in 2020/21, 4 million bales, or 12 percent above 2019/20. However the forecast number remains below the previous 3 years. While U.S. cotton exports are forecast to increase 1 million bales to 16.0 million bales in 2020/21, shipments from Brazil are projected to expand 400,000 bales to a record 9.0 million bales.

Meanwhile, India’s cotton exports are forecast to increase significantly from 3.0 million bales in 2019/20 to 4.5 million bales in 2020/21 – if this forecast is achieved then it will be a 50-percent jump nearly versus last year. Considering all the above mentioned factors, India’s cotton from medium to long term perspective seems to observe firm prices from current levels.

Author: Millionaires