MUMBAI (Commodity Online): Cotton prices witnessed volatile trends in 2011 with prices soaring to 67,000 a candy (one candy = 356 kg) but have fallen to Rs 34000 levels following higher arrivals and lower offtake by mills.
Farmers are demanding higher support prices of Rs 6000 per quintal as against Rs 3,300 annoucned by the government. While the fall in prices are partly due to fundamentals, India Government's unpragmatic export policy is also blamed for the poor plight of the farmers who are never able to gain from price rallies. This has led to resentment among farmers who are now lblocking roads in Jalgaon by burning tyres and refusing to sell their produce at present price levels which they say are unremunerative.
Price rose in domestic and international markets as shortfall in Chinese cotton crop and prolonged flooding in Pakistan along with export restrictions in India created a tight supply situation. Supply tightness amidst strong demand drove cotton prices to record high earlier this year bringing cheer to Indian farmers.
Some of the key reasons for the supply tightness was a shortfall in Chinese cotton crop, prolonged flooding in the cotton growing areas of Pakistan and export restrictions imposed by the Indian government in 2010.
Initially, government banned cotton exports in 2010 but later allowed certain quantities to be exported before allowing unrestricted sales overseas. However, cotton traders complain that delayed export approval often result in them not able to capitalise on rallies as they reach the export market late. Spinning mills, cotton traders and Cotton Advisory Board are at logger heads over estimation of cotton crop size and domestic demand. This has forced the industry to urge the government to maintain a stable export policy.
Cotton Advisory Board expects 2011-12 October to September season acreage to be higher at 122 lakh ha compared to 111 lakh ha in the previous season.
Meanwhile,International Cotton Advisory Committee (ICAC) has projected lower cotton acreage for 2012-13 due to lower prices prevailing this year after reaching record highs in 2010-11. ICAC predicts global cotton area to contract in 2012/13 by 8% to 33.3 million hectares and production to decrease by 6% to 25.1 million tons. Cotton production is expected to decline in most large producing countries, with the exceptions of the United States, Uzbekistan, and Australia.
Following two seasons at depressed levels, global cotton mill use is forecast to start growing again in 2012/13.This expectation is highly dependent on the assumption of a recovery in global economic growth that would stimulate purchases of textile products and consumption of raw fibers. ICAC forecasts global cotton mill use to rise by 3% in 2012/13 to 25.0 million tons, driven by Asia. Rising mill use and lower cotton prices could fuel a rebound in world cotton trade in 2012/13. Imports and exports are expected to jump by 9% to 8.4 million tons. As global production and consumption are expected to roughly balance in 2012/13, global cotton stocks are forecast to increase only slightly, to 11.6 million tons.
It looks like cotton farmers may have to wait for better times next year, if increased mill use and decreasing acreage pushes up prices.However, timely nod from government for exports would be required to cash in on global gains in prices.
At India Multi Commodity Exchange of India (MCX), Cotton January contract has fallen 1.875 to Rs 17080 per bale (170 kg) while NCDEX Kapas February contract has falen 3.47% to Rs 803.30 on Friday trade.
