Cotton prices have reversed gear over the last two weeks, thanks to growing realisation that domestic availability of the fibre will not be as bad as presumed earlier. Moreover, there is widespread expectation that imports could be in the region of five to six lakh bales (170 kg each) in calendar 1998 against 0.5 lakh bales in the 1996-97 cotton season.Imported cotton, despite the recent firmness in prices, is still around seven per cent cheaper than domestic cotton, industry sources say. Reports indicate that the textiles industry has already begun negotiations for the import of the first tranche of one lakh bales.
These developments are likely to continue to soften domestic cotton prices which had been rising earlier on reports of lower availability following a crop failure that saw suicides of over 80 cotton farmers in Andhra Pradesh in December 1997 and January 1998. There were also reports of a partial crop failure in Gujarat and Punjab as well.
Thanks to these early fears, since December domesticcotton prices have been on the rise. For example, the price for Bengal Deshi had risen to Rs 4,190 per quintal on January 30 from Rs 3,768 per quintal on December 27; Sankar 6/4 moved to Rs 6,130 from Rs 5,568.
In sharp contrast, international cotton prices have been on the slide since early November last. The Cotlook A and B indices on the New York Cotton Exchange were down to 69.40 cents per pound and 68 cents respectively, from 77.40 cents and 73.65 cents per pound respectively on November 6. However, on February 11, these indices were placed at 69.50 cents and 68.25 cents per pound respectively.
Since the first week of February, domestic cotton has begun sliding due to reassuring reports that sufficient cotton will be available for mills despite a marginal crop failure. Revised estimates of the cotton crop are likely to be made available only in March, but the expectation is that the total supply, including imports and carryover stocks, will not be too tight even if it is lower than the earlierestimate. In mid-January, the East Indian Cotton Association had estimated cotton availability to be in excess of 193 lakh bales as against a demand of just under 170 lakh bales (including exports).
"We are still assessing the situation," says Suresh Kotak, president of the association, one of the leading cotton exchanges in the country, which has been permitted, in principle, to take up futures trading in cotton by the Forward Markets Commission.
The industry bigwigs and the Cotton Advisory Board are scheduled to meet once again in March (after the mid-term elections) to arrive at the near-acceptable figure of cotton availability. Says Kotak: "Against our January 18 estimates of 160 lakh bales (of 170 kg each), we might receive around five lakh bales lower this year. However, the overall situation is very much comfortable. There will be no shortage of cotton in 1998-99 and there is no reason to panic."
There are four reasons for comfort, according to Kotak. One, though there might be a marginal drop offresh availability, the carryover stock (from last year) is higher. Industry sources place this figure at around 30 lakh bales against CAB's estimates of just around 24 lakh bales.
Two, international cotton prices are lower than Indian prices -- thanks to a higher global crop. Analysts say, global cotton production is likely to be 20.03 million tonnes against 19.57 tonnes in 1996-97 and consumption will be 19.5 million tonnes (19.19 million tonnes). But demand from the south-east Asian currencies is weakening, thanks to the economic crisis there.
The upshot: On New York Cotton Exchange, the Cotlook A index (average of cheapest five of 14 styles of cotton) slid to 69.5 cents per pound on February 11, 1998, from 77.40 cents on November 6, 1997. Earlier forecasts indicated that the index would rule at 83 cents per pound.
Three, India's cotton exports till December have been low at just around two lakh bales against the export quota of 5.50 lakh bales (fixed by the CAB), leaving 3.5 lakh bales surplus fordomestic consumption. Last year, with a record cotton crop of over 178 lakh bales (EICA's last estimate was 176.50, which may be revised upward), cotton exports were placed at around 16-17 lakh bales. Four, there has been increased use of cheaper near-cotton type yarns (viscose) for cotton fabrics. This has reduced the demand for pure cotton.
All these factors are likely to have a "sobering impact on rising cotton prices," said a top industry source requesting anonymity. According to Kotak, there was confusion over the size of the cotton crop because the early reports said that there were no new "flushes" from the cotton growing regions." The second flush -- or flowering -- is normally due around January-February. However, of late there have been reports that Gujarat region, which accounts for over 50 lakh bales annually, has begun getting a second round of flushes, while there are no fresh flushes in the northern region--Punjab, Haryana and Rajasthan.
" Farmers in the northern region are accustomed togrowing two crops on their fields, and therefore, they destroy the cotton plants soon after the first crop is reaped. They then sow wheat and other cash crops for the next season. However, farmers in Gujarat are comfortable with the same crop throughout the year and, therefore, have reported a second flush early this month. This has given the first signal of comfort on cotton availability, and hence the need to review the situation.
However, there is a bit of confusion on estimates of availability of cotton from Gujarat centres. These and other related aspects will soon get cleared once CAB and the cotton industry meet in March.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
