Gujarat is seeing a sharp decline in forward contract of cotton for export in the new season.
Gujarat is seeing a sharp decline in forward contract of cotton for export in the new season. The state, which accounts for about 25-30% share in India’s total exports, is witnessing less activity in new forward cotton contracts on account of hesitation by exporters who have had bad experiences in past few years and have faced losses due to advance commitment of cotton buying.
According to sources, India has exported about six million bales of cotton so far during cotton year 2016-17 and of it nearly 30% exports have been from Gujarat alone. “Usually a month before the new season, exporters commit advance orders with the ginners and cotton suppliers for exports in November and December. However, in view of unfavourable experiences in recent years , exporters are not taking risks in forward contracts resulting in virtually no forward contracts this year,” said Arun Dalal, an Ahmedabad-based cotton trader and exporter.
In addition to this, the industry is also expecting huge production in the current year. Good monsoon has increased cotton sowing by almost 18% nationally and 10.50 % in Gujarat. Higher sowing has brightened the expectation of better production.
Bharat Vala, president of Saurashtra Ginners’ Association said, “Prices will go down during November and December as the arrival of new crop will be in full force. Production is also expected to be better than last year. All these factors are preventing exporters from entering advance commitments for cotton exports.”
According to the latest data, as on September 1 area under cotton has increased to 11.98 million hectares as against 10.17 million hectares in corresponding period last year. Gujarat which is leading cotton producing state has sown cotton on 2.63 million hectares as on September 4, as against 2.38 million hectares in corresponding period of 2016.
The International Cotton Advisory Committee (ICAC) in its recent global stock position stated that cotton production in the US is forecast to increase by 20% to 4.5 million tonne. India will remain the world’s largest cotton producer in 2017-18 with 4% increase in output at 6 million tonne. Fluctuation in cotton prices is being seen as one of the factors for less forward contracts this year. Currently, cotton is traded at Rs 43,000 per candy of 356 kg in Gujarat. Traders are expecting fall in prices to Rs 38,000-40,000 once new cotton arrival begins in October. On the other hand, at present domestic cotton prices are higher than international markets which has also limited the demand.
Mumbai-based cotton trader and exporter Shirish Shah of Bhaidas Karsandas and Company said, “Domestic cotton prices are ruling high at this time compared to international markets which has kept the buyers away from India and as result very few export inquiries are there. While India is offering at about 90 cents, globally cotton prices are ruling at 72-75 cents. Cotton prices will decrease to `40,000 or below that in October and November and at that period international cotton will also fall from current level.” According to Shah, India’s cotton production would be around 36 million bales of 170 kg for the year 2017-18 as against 34 million bales in 2016-17.