Cotton knits a positive story

Domestic prices are strong amidst reports of crop loss and firm export demand

The year 2015 has not been good for agri commodities. Reduced acreage (prompted by price shock of 2014), bad weather-driven crop loss, unexpected demand from Pakistan, and delay in the release of Chinese inventories, however, helped cotton to outperform. With better weather forecasts and starting of Chinese cotton auction, things are likely to change.

Global production

The US Department of Agriculture (USDA) forecasts substantially higher production with a moderate increase in consumption. Global production is estimated at 104. 35 million bales (1 bale = 480 pounds) in 2016-17 compared to 99.54 in 2014-15, up 4.8 per cent. The likely increase in production is largely attributed to the US, India, and Pakistan. There aren’t any major increases in acreage, but extreme weather conditions and pest attack of last year that negatively impacted crop yields are not anticipated in 2016-17. In 2016-17, the USDA expects US cotton production at 14.8 million bales, India at 28 million bales and Pakistan at nine million bales, which are 15 per cent, 4 per cent, and 29 per cent higher than 2015-16 figures, respectively. However, Brazil and China are likely to have lower production. China’s cotton production has been pruned for a third consecutive year to 23.8 million bales in 2015-16 and 22.5 million bales in 2016-17. The slide comes in the midst of lower price realisations (cotton prices lost 30 per cent in 2014), reduced support prices and increased preference for foodgrain crops.

Global consumption

The USDA estimates global cotton consumption at 110.78 million bales in 2016-17 compared to 109.02 million bales in 2015-16. China’s cotton consumption (use of cotton by mills) had gone down in recent years on account of factors like higher domestic prices, falling man-made fibre prices and overall industrial slowdown; and no major upturn is expected. However, cotton consumption in China is expected to grow slightly in 2016-17 on lower domestic prices. China’s plan to auction two million tonnes of cotton began on schedule on May 3 and will run through till August end. The International Cotton Advisory Committee (ICAC) estimates that China’s auctioning of its cotton reserves will reduce Chinese stocks to a five-year low at 2008-09 level. China has also expressed its intention to purchase high-quality cotton from international markets between September and February to improve the quality of its reserves. This creates doubts over the quality of existing stocks. Reduced Chinese import hurt India’s cotton exports badly, prompting India to focus on alternative export destinations, such as Bangladesh, Vietnam, and Turkey.

Domestic scenario

The USDA expects India to harvest 26.8 million bales of cotton in 2015-16 against 29.5 million bales in 2014-15, down almost 9 per cent. However, local sources expect India’s cotton production to decline 17 per cent to 33.5 million bales (1bale = 170 kg) in 2015-16 due to whitefly and cotton leaf curl virus attack in northern India. Traders estimate total cotton availability at 40.1 million bales with total consumption at around 39.2 million bales for 2015-16, which would leave a surplus of nine lakh bales by September. However, carry-forward stock from the 2014-15 season was 5.5 million bales as opening stock for the 2015-16 season. Domestic prices are strong amidst reports of significant crop loss, firm export demand, and positive global cues.

The Cotton Corporation of India has reduced the export forecast to 6 million bales from 6.6 million bales forecast earlier amid firm domestic prices.


Indian cotton looks to trade range-bound with a positive note in the short to medium term due to likely lower production in 2015-16. Robust buying from domestic spinners and millers is expected due to the scarcity of good-quality cotton. However, higher production prospects for 2016-17 and bleak prospects for exports may restrict any gains. This year’s sowing progress, planting conditions, and weather will need to be tracked. International cotton may trade steady unless weather forecasts change dramatically.

The writer is VP and Head, Agriculture, Food, and Retail, at Biznomics Consulting

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