Indian cotton prices top global level first time in three years

Domestic prices may soar further on depletion of stocks and poor monsoon

Cotton prices in India, the world?s second-biggest supplier, have crossed global levels for the first time in three years, triggering a scramble for the fibre from overseas, as record shipments and lower-than-expected arrivals of the crop have depleted local stocks, official and industry sources said on Wednesday.

Domestic cotton prices are ruling around 88 cents per pound, freight on board, around 14% higher than the African fibre and 10% than the crop in the US, the world?s largest cotton exporter. US cotton futures for the December delivery settled at 72.43 cents a pound on Tuesday, reflecting a moderation in global prices, going forward.

US cotton futures have crashed 67% from an all-time-high of $2.197 a pound in March last year, as production rose while demand from textile mills tumbled on slowing economic growth. Cotton became the biggest loser in the past year among the 24 commodities tracked by the Standard & Poor?s GSCI Spot Index.

In a stark contrast, domestic cotton prices are expected to rise even further in the coming days as poor monsoon showers have raised fears of a fall in output in the year starting October 1. Saurashtra and Kutch regions of Gujarat, the country?s largest producer, have received 72% less than the usual rainfall by this time, while parts of Maharashtra, the second-largest producing state, have also witnessed dry spells.

Agriculture secretary Ashish Bahuguna last week said cotton output may be hit if the two regions in Gujarat don?t receive good rains by the end of this month, although the situation in Maharashtra was still better.

Cotton planting trailed the usual average by 7% at 8.37 million hectares until July 20 since summer sowing started in June with the arrival of seasonal showers.

Worried textile mills have already started importing in huge volumes to prepare for a shortage in the domestic market, a situation last witnessed before the introduction of the BT Cotton in India around ten years ago.

The country?s cotton imports are expected to hit a nine-year high of 1.5 million bales in 2011-12 ? a significant portion of which is expected from African nations including Tanzania ? thanks to record exports of around 13 million bales so far in 2011-12. Poor quality of domestic cotton available currently, after higher-grade cotton was exported earlier this year, many mills have stepped up imports, said a senior trader executive.

Cotton supplies in the domestic market, too, have shrunk as harvesting across regions is over. Arrivals of the fibre have reached 33.8 million bales, which means the output projections for 2011-12 by the state-backed Cotton Advisory Board (34.7 million bales) and the agriculture ministry (35.2 million bales) would be missed.

Although India usually buys some high-grade cotton varieties in small volumes from overseas ? mainly from Egypt and the US ? this year mills are purchasing all varieties.

Imports have already touched one million bales, compared with the CAB?s projection of 600,000 bales for the entire 2011-12. The country had imported 500,000 bales of the fibre last year.

?Everybody is waiting for a clearer picture on monsoon to have an idea of the next year?s crop size. Moreover, people fear that harvesting may get delayed due to the late arrivals of monsoon and consequent delay in sowing. Below-normal rains have the potential to hit yield, and as of now, prospects of yield don?t look good,? DK Nair, secretary-general of the Confederation Of Indian Industry.

Another industry executive said if harvesting is delayed beyond the usual time of late September, domestic prices would skyrocket, as there would hardly be any stocks available in the domestic market.