After Tight Range, Cotton Prices To Ease Out In Coming Months

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After Tight Range, Cotton Prices To Ease Out In Coming Months

The cotton futures has traded in a tight range during last three months despite improved arrivals of cotton in domestic market, reports of better acreage in coming kharif season, higher than expected imports, comparatively lower exports during last season. However, experts are of the view that the cotton futures are likely to fall in coming months as the cotton sowing in the country pick may pick up in Maharashtra & Gujarat.

Multi Commodity exchange (MCX) cotton futures traded in monthly average prices Rs. 20,700 and 20,800 a bale during the month of April, May and June. Moreover, cotton futures have sustained above Rs. 20,000 a bale in the current calendar year 2017, longest time frame ever of 6 months, due to tight supply - demand situation in the country due to lower than expected arrivals of cotton in the physical market, despite good production last year.

"The situation is now changing as cotton arrivals have improved over the last two-three months," says Ritesh Kumar Sahu, fundamental analyst- agri commodities, Angel Commodities Broking.

As per the Cotton Corporation of India (CCI), about 321 lakh bales of cotton have arrived in different states during 2016/17 season. The highest arrivals have been recorded from Maharashtra (86.23 lakh bales) and Gujarat (80.6 lakh bales). Earlier, according to Cotton Association of India (CAI), the arrival of cotton till April 2017 is estimated at 306 lakh bales while it was only 275.50 lakh bales till March 2017. Country reported arrivals of 30.75 lakh bales during April 2017 compared to 22.25 lakh bales last year.

As per United States Department of Agriculture (USDA), world cotton production is expected to increase to 24.98 million tonnes (mt), up by 1.33% compared to last year production while the consumption is expected to grow by only 0.65% on year to 25.03 mt. However, global consumption is expected to remain above production for the third consecutive year in 2017/18 but the ending stocks outside China is going to increase about 1.8% to 10.5 million tonnes. As per USDA, production in India is expected increase by about 6% to 6.1 mt while export will by 6.73% to 0.94 mt. Due to expectation of better supplies the imports of cotton in the country is expected to be lower by 30% to 0.40 mt in 2017/18 which increase about 133% last year to 0.55 mt.

The cotton sowing in the country started on a brisk pace in the north India, as planting in Haryana and Punjab have been higher compared to last year. As per government weekly sowing data, Haryana, acreage was at 630,000 ha, up 28% on year, while in Punjab, the area under cotton was up 52% at 382,000 ha. Moreover, Farmers in Gujarat, country's largest producer, have started sowing cotton early this year and covered 49,400 ha till last week, up by 225% compared to last year acreage.

On MCX, cotton prices for the most active contract for June delivery fell about 5.8% or Rs. 1,260 from the high of Rs. 21,700 per bale to Rs. 20,440 today in last one month. The prices may trade lower in coming months if normal weather persists during the cotton growing period in the US, China, India and Pakistan. Moreover, if the pest incidents in the country remain below minimum threshold levels, bumper production in the country may have the potential to depress cotton prices in the coming season.