Good Monsoons Force Distress Sales On Cotton Farmers

Market Intelligence

Good Monsoons Force Distress Sales On Cotton Farmers

India's local cotton prices crashed during October first half, after the gain in September end. Price fall was due to the fresh crop arrival from the new season. The supply started picking up while demand for the fiber was low. Further, there is expectation that crop production from the current season could overtake the production estimates made so far. The contributing factor is favourable monsoons in the second half of September. This gave a boost to production of the crop. As usual, farmers had no space to store freshly harvested cotton and were forced to sell at lower prices.

In the northern parts like Punjab, there is however, a different story. Some of the crops have been attacked by whitefly. This could adversely affect the production estimates from northern India, were it to be on a mass scale like in the previous year.

On the arrival front, fresh crops have started coming in Gujarat, Madhya Pradesh and Rajasthan. Daily arrival in the country has picked up and is estimated to be in the range of 30000 - 40000 bales at present. In the current scenario, where cotton crops supply is picking up and prices of the fiber are falling, the price of benchmark Shankar-6 variety is around Rs. 42,200 per candy. The price has scaled down by Rs. 5,200 per candy.

On the global front, cotton prices moved down during the first fortnight of October reversing the upward trend witnessed in September. The concern from hurricane was over and cotton fiber prices lost a few cents in trade. The key data on the crop from USDA's latest forecast indicate that world cotton production will be up from the earlier estimates to 102.5 million bales. However, consumption estimates remain almost unchanged at 111.2 million bales (increased from last season's 110.2 million bales) and ending stock has been revised to 89.8 million bales (as against last season's 99.2 million bales).

On the price front, 'A' index has moved down and stood at 77.05 US Cents on 7th October. To look at the trend, 'A' Index was at 69.55 US cents per pound in December 2015 end and was 67.65 US cents per pound in December 2014 (28th of Dec 2014). To compare further, 'A' index was 89.25 US cents on 29th December 2013 and was at 84.80 US cents on 28th December 2012.

On the yarn front, cotton yarn prices remained stable during the first half of October. However, as the price of cotton is declining, there would be pressure on yarn suppliers to reduce prices for their future negotiations. Yarn demand has been moderate and similar situation may continue for some time. If yarn prices come down, exports could pick up momentum.

Cotlook 'A' Index: 77.05 (As on 7th October 2016)