Tight global supply likely to lift cotton prices

Cotton production in India has received a boost from a good monsoon this year, increasing domestic availability of the key cloth-making input. The country is expected to produce 35.8 million bales in 2013-14, up 5.7 per cent from 2012-13 levels.

Domestic consumption of cotton, however, is likely to rise only by 3.6 per cent to 29.8 million bales. This leaves a 6-million bale surplus available for exports. In India, a bale of cotton amounts to 170 kg, but globally, a bale is calculated as approximately at 218 kg.

Lucrative opportunity

Weakness of the rupee against the dollar provides a strong impetus for exports of cotton by India and presents a lucrative opportunity. However, Indian growers might not be able to capitalise on this. The Agriculture Ministry has sent strong signals that it is in favour of retaining the bulk of domestic stocks of cotton for the benefit of textile units in the country, which are constantly lamenting shortfalls in availability of input material and high prices.

The modal price of cotton in Gujarat’s Rajkot market has already shot up by 32.4 per cent during the year, to Rs 42,018 on August 23 from Rs 31,726 a candy (356 kg) at the start, according to Agriculture Marketing Information Network (Agmarknet) data.

Permitting exports at this juncture could result in Indian prices shooting up further and hence, most exporters’ hopes are likely to be squashed by non-issuance of Open General Licences (OGL). Reports indicate that overseas shipments of cotton plummeted in the first half of 2013 in the absence of sufficient export licences.

Rise in global prices too

Global prices have been on the rise too. Prices of cotton shot up by 24.4 per cent to 93.4 cents a pound (approximately Rs 46,343 a candy) on the US-based Intercontinental Exchange during the year to August 16. And even though they have since cooled to 84.5 cents/pound (Rs 41,927/candy), indications are that global rates will begin to trend higher in the medium-term.

This is because in contrast to the Indian situation, global production of cotton is expected to have declined during the year amid unfavourable weather in key producing countries such as China. The US Department of Agriculture has pegged global production of the natural fibre at 116.38 million bales in 2013-14, down 3.9 per cent compared with the previous year.

On the other hand, global demand for cotton has risen. The USDA has projected a 2.2 per cent increase in consumption of cotton worldwide in the 2013-14 season (which commenced on August 1) to 109.8 million bales.

This is likely to result in tightness in the international supply situation, presenting an enormous opportunity for Indian cotton growers to reap a good price for their produce, if the Government permits it. Prices of the commodity are down significantly from the high of $2.15 a pound (Rs 1,06,678/candy seen in April 2011.

The slowdown in China, however, could have a bearing on the commodity’s fortunes.

Cotton is one of the most important textile fibres, accounting for around 35 per cent of all textile fibre used worldwide. Production and trade is spread across the globe, with more than 80 nations cultivating the crop. In India, cotton is planted from the end of April through September and harvested from October to January, based on the time of sowing.

The States of Gujarat, Maharashtra and Andhra Pradesh are the major producers of cotton, accounting for 75 per cent of the country’s total output. India is currently the world’s second-largest exporter of cotton.

> arvind.jayaram@thehindu.co.in

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