The cotton price will increase further in the current season on the back of recent revised production estimates.
The cotton price will increase further in the current season on the back of recent revised production estimates. The price is expected to be in the range of Rs 127-130 per kg in the CS (cotton season) of 2018-2019. Earlier, it was projected to be in the Rs 125-127 per kg range.
According to the recent revision, the cotton production is estimated to be around 321 lakh bales (1 bale equals 170 kg) as against 328 lakh bales projected a few months ago, a drop of 7 lakh bales in the current season. Hence, the commodity price is expected to shoot up. The current season’s output estimate is lower by about 12% year-on-year compared with the output in CS 2018 which stood at 365 lakh bales.
Further, the price is expected to be supported by weakened rupee and rising consumption in both the domestic and overseas markets. Price is also expected to be affected by the ongoing trade talks between the US and China.
Also, with high cotton prices and sluggish domestic and export demand for cotton yarn, the yarn demand is expected to stagnate at the current levels majorly on account of weak demand from China, which is the world’s largest consumer. However, in medium to long term, decrease in demand from China will be offset by improvement in demand from Bangladesh, Pakistan and Vietnam, said a Care Ratings analysis.
This downward revision in cotton production is largely attributed to the water shortage faced by cotton crop in southern states, including Telangana, Andhra Pradesh and Karnataka and due to reports that farmers have uprooted their crop forgoing a chance for additional pickings.
As per the Cotton Association of India (CAI), crop estimate for Gujarat has been reduced by 1 lakh bales, Maharashtra by 80,000 bales, Telangana by 4 lakh bales, Andhra Pradesh by 1 lakh bale and Karnataka by 75,000 bales, while there has been a marginal uptick of 50,000 bales in Tamil Nadu and 5,000 bales in Odisha, the rating agency analysis said.
The CAI has also maintained the estimated domestic consumption of 316 lakh bales. Consequently, China is expected to regain its tag of the world’s largest producer of cotton which it had lost to India a couple of years ago.
Based on the latest estimates, imports for the year would be 27 lakh bales, higher by 12 lakh bales compared to the previous year’s import estimated at 15 lakh bales. The exports have also been estimated at 47 lakh bales, lower by 22 lakh bales compared to the export of 69 lakh bales estimated during the last year.
According to the analysis, cotton prices have come off last season’s high and are trending lower at around Rs 125 per kg for Shankar-6/Shankar-4 and around Rs 118 for J-34(Sg) but are still higher year-on-year. The cotton yarn prices have also moved in line with the cotton prices, during the period. Further, China is importing more cotton and less yarn from India given the duty differential between the two.
Going forward, cotton price is expected to increase with this further cut in the production estimate. With limited supply in the market, prices are expected to average at about Rs 127-130 per kg for CS 2018-19.