A sharp rise in international cotton prices, following abnormal weather conditions in major cotton-producing countries such as the US and China has improved India's prospects for cotton exports.
Analysts and trade organisations are revising cotton exports estimates upwards for 2017-18 (October to September is the period of active cotton production).
Now, exports are estimated to reach 7.5 million bales, highest after 2013-14. Exporters’ margins have also increased to a record high. Currently, the free on board (FOB) price of cotton being exported is 83.78 cents against the US benchmark ICE traded cotton price of 89-90 cents.
Prerana Desai, Research Head at Edelweiss Agri Services and Credit said, "Indian cotton prices have remained subdued throughout the current cotton season. This is mainly due to the early reports of PBW damaged crop. With the sharp rally in the global prices, there is stiff competition.
This will result in relatively large exports in the lean season. India has exported around 6.1 million bales (with each bale of 170 kg) between October and April in the current season. The potential export capacity is 7-7.5 million bales. A weak rupee will provide a fillip to the cotton textile value chain exports, and thus end up supporting cotton prices for the rest of the season."
Prices are rising because of heavy rainfall in the cotton-growing regions in China two weeks ago, and the Country's depleting reserves, which is currently one-fifth of what it was three years ago.
Hence China's domestic supply is falling. US cotton has always been in demand, and India's cotton was less preferred because of its presumed inferior quality. Again, some importers of Indian cotton had shifted their focus to the US variety. As a result, in 2018, the price of the Indian Shankar-6 variety has increased 5.4 per cent, while prices of US cotton are up 14.4 per cent.
Atul Ganatra, President, Cotton Association of India said, “The cotton deficit in India is set to vary from earlier estimates, with exports likely to touch 7.5 million bales, up from earlier estimates of 6.5 million. Imports, which were estimated at 2 million bales, are now revised downward at 1 to 1.2 million bales."