Cotton prices may remain under pressure on huge carryover stocks

Cotton prices are likely to remain under pressure below the minimum support price (MSP) for a better part of the 2020-21 season, thanks to a record carryover stock of 107.5 lakh bales (170 kg each), top officials of the Cotton Association of India (CAI) said. Last year, carry stocks were 32 lakh bales.

Atul Ganatra, president of the CAI, attributed the record carryover stocks to the Covid pandemic, pointing out that trade had been completely affected and spinning mills had stopped functioning. The industry had gone into a shutdown mode that had led to a drop in consumption levels to 250 lakh bales from the previous estimates of 330 lakh bales.

With the easing of the lockdown and the economy slowly getting back on track, demand has begun picking up, Ganatra said. Spinning mills are now operating at 95% of their capacity, which will lead to an increase in consumption levels, he said.

Since Indian prices are ruling below international prices, exports are likely to go up to 75 lakh bales this season, he said. Cotton prices in the US and Australia are currently touching Rs 45,000 and Rs 50,000 per candy, respectively, while in India, prices are at Rs 40,000/41,000 per candy, he pointed out. During the same period last year, prices in India ruled at Rs 5,325-5,340 per quintal.

Currently, prices for Shankar-6 ginned variety, the benchmark for exports to the global market, are ruling at Rs 40,200-40,700 a candy (356 kg). This season, the government-declared MSP for medium staple kapas (raw unginned cotton) is Rs 5,515 per quintal while that of long staple is Rs 5,825 per quintal.

Indian cotton is among the cheapest in the world, and is now an attractive option for exports, Ganatra said. Last season, cotton exports had touched nearly 50 lakh bales. According to Ganatra, there have been enquiries from Bangladesh, China, Vietnam and Indonesia. Traders said export contracts have been signed for 4 lakh bales so far.

The new season, which commenced on October 1, has seen unprecedented rains, causing a drop in arrivals, he said. Rains in cotton-growing states such as Telangana, Andhra Pradesh, Maharashtra and Gujarat have led to speculations that the crop this season could be lower than last year’s 360 lakh bales. The new estimates would be released in early November and it will be difficult to assess the damages as on date, Ganatra said.

He feels that existing stocks with the CCI are also putting pressure on prices. The CCI has around 45-48 lakh bales and proposes to purchase around 125 lakh bales which could further increase the stocks with the corporation, he said. The corporation has been offloading stocks in the market by raising prices regularly, traders said.