The prices were lower during the last year because of the pandemic, when the mills were closed for almost two- and-a-half months. It was not only in India but across the globe.
The cotton season of 2020-21 has almost come to an end, and has been pretty eventful for the Cotton Corporation of India (CCI). Pradeep Kumar Agrawal, CMD, CCI, spoke to Nanda Kasabe of FE about the season that initially commenced with low cotton prices and is going onto surpass the minimum support price (MSP). Excerpts:
How would you describe the cotton season of 2020-21 and how has it augured for the Cotton Corporation of India?
It has been a good year for the Cotton Corporation of India (CCI). Cotton farmers have gained this year. During the cotton season of 2020-21, CCI has procured 92 lakh bales under MSP operations. For the last six weeks, cotton prices have been ruling much above MSP, and currently they are 15-20% above MSP. Therefore, the intervention of the agency has not been required after mid-February. So, farmers are getting Rs 6,400 to Rs 6,500 per quintal as against the MSP of Rs 5,825 per quintal. Initially, it was expected by the trade and market sources that CCI may be required to buy at least 1.5 crore bales but since the farmers are getting good price from the market forces itself, MSP intervention is not required now.
How would you describe the price behaviour of the commodity this season?
Initially, cotton prices were well below the MSP but now they are ruling 15-20% above the MSP. Indian prices are still the most competitive in the world. Indian cotton is still the most reasonably priced globally, and the industry is also getting good quality cotton at consistent price. That is why I think they are getting good margins in yarn, too. It has been reported by mills that they are getting good margins for the first time.
What are the reasons behind the price hike? The season began with cotton ruling below MSP and this later went up?
The prices were lower during the last year because of the pandemic, when the mills were closed for almost two- and-a-half months. It was not only in India but across the globe. The international prices at that time had come down to the level of 50 cents per pound, which has gradually improved, and now the international prices have touched the peak level of 96 cents per pound because of the demand. But, for the last few days, it has gone down 10 cents again, and is still ranging in 84-85 cents per pound, which is around Rs 50,000 per candy.
But Indian cotton is still available at Rs 46,000 to Rs 47,000 per candy, and is still competitive. Because of the pandemic, the demand has increased as Indian cotton is competitive. Another factor that has led to the price rise is that the Pakistani crop has been damaged badly. Also, stocks, which had piled up during the pandemic, have started depleting. At the start of the season, the stocks were in the range of 120 lakh bales, which is expected to come down to 90-95 lakh bales. At present, CCI hardly has 47 lakh bales.
CCI has declared a price correction of cotton this week. Can you share some details on it?
CCI has reduced the selling price of cotton as a “one-time correction” by Rs 800-Rs 1,100 per candy. International cotton prices had risen almost 12% in the last two months and dropped at the same rate. CCI did not increase the prices to that extent. Since CCI prices went up only by about 2%, it has reduced the prices by [about] 2%. The amount of reduction in prices differs according to the variety of cotton. Therefore 29 mm cotton is now available at around Rs 42,000 per candy.
How is the export demand of cotton and what is your market view?
India has been able to export good quality cotton this year to Bangladesh, China, among other nations. The country has been able to export 45 lakh bales. Another six months are left. Cotton exports may go up to 65-70 lakh bales. Indian prices are competitive. Bangladesh will hold an exhibition. It may attract cotton firms from India. Also, geologically and geographically, it is very competitive. We have also sent around 20,000 bales to Bangladesh by train. The MoU with the government is in the process. This sale has been made through a global tender. Other exports are through merchant tenders i.e. traders are buying from us and exporting.
How about the commercial sales of CCI?
The improvement in prices has helped in reducing MSP losses. Otherwise, it would have entailed more burden on the government. Overall loss will be there but it has helped mitigate losses to some extent.
Do you see any further hike in prices?
In my opinion, prices are at a very reasonable level. Rs 45,000 to Rs 46,000 per candy is a normal price level after the peak season every year. There is no abnormality in the price. Industry itself is paying Rs 6,000 per quintal for Kapas (raw cotton). It means cotton is viable to them at these rates and they are getting reasonable margins in the spinning segment. Otherwise, CCI would have continued MSP operations.
What have the cotton arrivals been like to date and the Indian crop size in 2020/21 season?
Arrivals have been in 320 lakh bales range and the crop, as per estimates of the Committee on Cotton Production and Consumption (CCPC) — a body represented by growers, traders, textile industry and officials of the ministries of textile and agriculture — is 371 lakh bales. The CCPC meeting is likely to be held shortly. The arrivals have tapered down substantially. Arrivals, which were around 2 lakh bales to 2.5 lakh bales a day, has come down to 50,000 bales a day. By April-end, arrivals will be completely wiped off. Only some summer crop of 5-6 lakh bales from states like Gujarat, Tamil Nadu Karnataka may still continue. Most of the arrivals should be completed by April.