Lower Sowing Area, Higher Cotton Production Estimates – Mystery Or Reality

Market Intelligence

Lower Sowing Area, Higher Cotton Production Estimates – Mystery Or Reality

The current cotton season ends in the next few days, as we welcome the new season from October 1, 2021. Trading for the new crop 2021-22 has already begun. As per various estimates, the final sowing area is lower than that of the previous year. However, excellent to good condition of standing crop, with no major disease and pest attacks has led to predictions of better yield, despite the lower acreage, in the new season. The current spate of rains in Gujarat has proved to be a boon for the standing crop, reducing the rain deficit in the cotton growing areas of the state. Weather conditions remain favourable for cotton crop. The crop scenario is good in Maharashtra, Telangana, Andhra Pradesh and Northern India. Let’s hope for supportive weather conditions with better crop numbers this year, so that spinning mills can enjoy better quality cotton at competitive prices. Meanwhile, some ginners, traders and CCI are still trying to sell old cotton, but buying remains restricted, with pressure on price, as new crop arrivals are anticipated. Also, market reported that a few spinning mills are trying to reduce cotton inventory by selling its cotton in the open market; the reasons – lower price expectations, upcoming lower prices of yarn, demand-supply situation. Indian cotton prices are trading higher from the last fortnight. Good to very good rains have been reported across Gujarat, Maharashtra and northern parts of India, which has caused some delay in cotton seed arrivals. Due to this delayed arrival forecast, prices had some support for September and October deliveries of cotton. Cotton prices for November-December deliveries are trading in a narrow range. Some trade has been reported for Gujarat 29mm/75RD at around Rs 53000-53500 per candy ex gin for November-December deliveries. Export demand is reportedly limited. In spite of new cotton continuing to remain the cheapest in the world, we are not able to make it lucrative for importers specially from China and Bangladesh. Lower demand from these two countries could imply that they have enough inventories, and they are expecting prices not to move up sharply. Indian cotton consignment stored in Chinese warehouses is getting offered at cheaper prices than the new crop offers from India can be another reason for lower demand of new cotton in China. In recent US weekly sales report, China reported to buy big portion of total weekly sales of US cotton. Which indicates if this will continue further, China can show lower interest for Indian cotton at higher prices comparatively. Indian rupee continues to be stronger against the dollar, recently it went below Rs 73 against the dollar; currently trading around Rs 73.50 against the USD, which was trading around Rs 75 couple of weeks back. This rupee movement made export offers quite expensive and also supported to lower Indian prices locally. It looks this should trade range bound. MCX cotton for new crop is trading with limited volume. October contract touched Rs 25000 per bale two weeks back, which is now at Rs 26000. This seems because of good monsoons reported from various parts of the country, and expectation of delay in arrivals especially for MCX deliverable quality. November-December contracts were not having any volume till couple of days back, but some good volume trading has been reported in the last two-three sessions, but with discount over October contract. MCX December contract is selling at a level of Rs 25600-25,700, which is equivalent to Rs 53,600 per candy in line with open market selling. In physical market, trading activities are limited with uncertainty around crop numbers and rainfall pattern. WASDE September 2021 The USDA has increased its outlook for this year’s upland cotton crop, while cutting the estimate for rice. Upland cotton production is expected to be 18.509 million bales, up 1.281 million bales from August, with an average yield of 890 pounds per acre, a jump of nearly 100 pounds on the month, which cancelled out reductions in planted and harvested acreage totals. Harvested area for all types of cotton is seen at 11.19 million acres, with harvested upland area at 9.8 million acres. In 2020, upland cotton production was 14.608 million bales, with an average yield of 847 pounds per acre and harvested area of 8.275 million acres. There is no major change for Indian balance sheet, beginning stock reduced from 20.33 million bales to 20.26 million bales. For India, USDA has reduced production from 37.22 million bales to 36.48 million bales of 170 kg each. Ending stocks came to 17.70 million bales, from 18.41 million bales. Export and consumption estimates remain the same as in the last report. US cotton export sales for week ending September 2, 2021 Net sales of 453,000 RB for 2021/2022 primarily for China (261,500 RB, including decreases of 100 RB), Pakistan (36,500 RB), Indonesia (30,500 RB, including decreases of 100 RB), Guatemala (28,400 RB), and Turkey (25,400 RB, including decreases of 300 RB), were offset by reductions for Japan (1,100 RB) and Bangladesh (200 RB). Total net sales for 2022/2023 of 19,500 RB were for Guatemala. Exports of 155,300 RB were primarily to Vietnam (48,600 RB), China (29,100 RB), Pakistan (16,600 RB), Mexico (16,000 RB), and Turkey (14,300 RB). Net sales of Pima totalling 12,100 RB were primarily for India (5,500 RB, including decreases of 100 RB), Austria (2,600 RB), Honduras (2,200 RB), Pakistan (900 RB) and South Korea (700 RB). Exports of 12,000 RB were primarily to India (7,700 RB), Pakistan (2,200 RB), China (1,000 RB), Peru (400 RB), and Thailand (400 RB). (Vimal Verma is a cotton trader)