Huge Supply - Things Are Improving But Not Cotton

Market Intelligence

Huge Supply - Things Are Improving But Not Cotton

Indian cotton market traded steady in narrow range for two major reasons - the apprehension that CCI may sell its cotton at lower price, and continued good arrival of kapas from farmers. Most of the daily arrivals are going into CCI's account. CCI is still buying cotton at MSP from farmers and has indicated its willingness to continue buying till the end of the season. Daily all India cotton bales arrival is around 70,000 bales. All India total arrival has crossed 30 million bales, with prospects of good crop numbers. Farmers are still holding good amount of cotton stocks. Next year's cotton sowing projections are good with positive forecast of monsoon for cotton. Recently, decent export business has been reported. Weaker & stable Indian currency has made Indian cotton prices competitive. As of now Indian cotton is one of the cheapest in the world. If exports continue at the same pace for a month, export estimates will need to be revised significantly higher. Sowing development 2020-21 Cotton crop has already been sown over 1 million acres in Punjab and the government hopes to achieve the target of 1.25 million acres this season. Farmers have chosen cotton over other crops, which has resulted in the hike in cotton area. Diversification of the cropping pattern away from paddy helps in saving water, improving soil fertility, avoiding winter stubble burning and preserving the environment. A total of 0.66 million acres was brought under cotton cultivation in 2018, followed by 0.97 million acres in 2019. Assurance from CCI to buy cotton at MSP next season as well has encouraged farmers to sow cotton again. In the other cotton producing states, sowing is expected to pick up after June 15th, after the arrival of monsoons. Improving retail As the lockdown eases across the world, retailers are restarting their business. In USA and Europe, retailers have received good response from customers. In India, malls and markets are not fully operational, many brands have started their operations though. Labour will remain a big challenge for the textile industry for the next few months. The good news is that some workers have sought permission to come back to work, but majority of the workers are still not available. CAI revision in crop and export numbers Recently Cotton Association of India revised its estimates for 2019-20 season and cut 2019-20 cotton production estimate by 7%. The CAI has reduced its cotton crop estimate for 2019-20 to 33.00 million bales of 170 kgs each as against 35.45 million bales estimated by it earlier. The CAI has estimated exports for the season at 4.7 million bales as against 4.2 million bales estimated earlier. This export estimate is higher by 500,000 bales than estimated in the previous year looking to the favourable conditions now existing for export of cotton from India. Mismatch in prices in the market and from cotton agencies Indian physical cotton is trading in the range of Rs 32500-33000 per candy for Gujarat/29mm/75 RD with rest standard parameters. Some continuous demand is witnessed from domestic mills on hand-to-mouth basis but due to lower cash flow and limited movement of yarn, trading volumes are very limited. Despite the fact that spinning mills have limited raw material & the comparatively lower cotton price, spinners are unwilling to build cotton stock. GUJCOT Trade Association (Gujarat based trade association) daily spot price for 28th May is Rs 32400-32700 per candy for 29mm/ 3.8MIC/76RD, while CAI (Cotton Association of India - Mumbai based trading association) is publishing prices for the same day for almost similar cotton at Rs 34700 per candy, approximately Rs 2000 per candy higher. This huge difference in price can lead cotton seller/purchaser into dispute at any time. It is always advisable to cross check cotton prices from physical market while taking any trade call. Locusts in India Locusts are spreading in various parts of India. It has been reported through secondary sources that locusts have nearly destroyed the fresh vegetation of cotton plants in few regions of northern and western Rajasthan. The plantation is at the early stage and if required measures are not taken, the damage can spread over to other districts. Cotton is yet to be sown in most of the states except north, so as of now cotton has not been affected much. According to the Food and Agricultural Organization (FAO) desert locusts typically attack the western part of India and some parts of the state of Gujarat from June to November. However, the Ministry of Agriculture's Locust Warning Organization spotted them in India as early as April this year. A swarm of 40 million locusts can eat as much food as 35,000 humans, according to FAO estimates. The current swarm has destroyed seasonal crops in the states of Rajasthan and Madhya Pradesh. US export sales for week ending 5/21/2020 Cotton: Net sales of 44,600 RB for 2019/2020 were down 65 percent from the previous week and 85 percent from the prior 4-week average. Increases for China (58,600 RB), Vietnam (34,000 RB, including decreases of 6,300 RB), and Germany (200 RB), were offset by reductions primarily for Pakistan (12,100 RB), Thailand (9,200 RB), Turkey (8,800 RB), South Korea (7,400 RB), and Mexico (6,400 RB). For 2020/2021, net sales of 171,900 RB were primarily for China (113,200 RB), Turkey (24,600 RB), Pakistan (11,400 RB), Thailand (9,700 RB), and South Korea (9,400 RB), were offset by reductions for Mexico (4,300 RB). Exports of 267,400 RB were up 6 percent from the previous week, but down 4 percent from the prior 4-week average. Exports were primarily to Vietnam (84,300 RB), China (55,300 RB), Pakistan (52,900 RB), Turkey (30,500 RB), & South Korea (10,500 RB). This is second consecutive lower weekly sales with Higher ICE. With current level of ICE & USDINR value India is competing well & selling decent volume in Export market. Lower ICE can Initially make Indian basis strengthen &later part due to enough supply in India Basis again can go more cheaper. Cotton Technical MCX cotton June 20-The market is consolidating between 15600 & 16400. Short-term outlook is neutral. Resistance 16400, 17000. Support 15600, 15000 ICE July 20-Resistance is still at 60.00& 61.00, building value above 61.00 will set new target of 63.50-64.50, Support is 57.00 & 55.70 55.40 & key at 54.75 - 54.50 if broken 52 can be minimum downside move. US-China relation is still Important for worldwide cotton trade business. US-China relations have not improved. Also, in India, sentiments towards China have cooled off considerably. Emerging India-China tensions can lead to some business disruptions as well. We hope these tensions get resolved soon, so cotton trade can come back on track. (Vimal Verma is a Cotton Trader)