The domestic consumption is seen at 29 million bales, leaving 11.4 million bales for exports
While sugar and wheat are facing supply issues in India due to lower production, cotton has emerged as the flavour of the season, which, if planned well, could possibly earn enough from exports to take care of the import costs in the other two commodities.
The Mumbai-based Cotton Association of India (Cai) last week scaled down its production estimate for this year to 34.1 million bales from the December forecast of 34.5 million bales. But it is still higher from last year’s total output of 33.77 million bales. One bale of cotton weighs 170 kg.
The projected balancesheet drawn by Cai estimates the cotton supply for the 2016-17 season (which began on October 1) at 40.4 million bales. The increase in estimate is mainly due to the expected rise in production in the north and central zones. But a marginal drop in output is expected in the south zone. The domestic consumption is estimated at 29 million bales, leaving a surplus of 11.4 million bales, it said. Cotton arrivals during the 2016-17 crop year are estimated to be lower than those up to the same period last year due to holding back of seed cotton by farmers.
Cai last year opposed creation of any buffer stock, as it wanted to take maximum benefit from existing exports opportunities. It had urged the government to ask Cotton Corporation of India (CCI) to procure 7-8 million bales in the peak season and not to retain it as buffer stock. The government wanted to sell this quantity only to actual users during May-September.
The idea of creating a buffer stock for exclusive use by a certain sector is wrong as it will not only distort the market but will also unsettle other sectors of the cotton value-chain. Apart from this, creation of a buffer stock system would require Rs 16,000 crore investment for procuring the desired 8 million bales, which in turn will involve total recurring expenditure of hundreds of crores a year by way of carrying cost, Cai said.
China, which had implemented a similar reserve policy and created a huge stockpile of cotton, suffered enormously and eventually decided to liquidate its stock. Their cotton economy is still reeling under the debacle that the cotton reserve caused. China is a huge cotton deficit country, while India is a huge surplus country and cotton is available to Indian mills at their doorsteps, Cai’s former president Dhiren Seth said. India should learn from Chinese mistake. It created inefficiencies in its system for which China continues to pay a heavy price even now, he added.
Meanwhile, after tumbling to its lowest level of week, MCX cotton futures recovered its gains on January 25 due to fresh buying at lower level. Despite of gradual rise in arrivals, overall supply of cotton is still lower compared with normal at physical market supported prices at futures platform. Near-month contract rose 0.89 per cent to Rs 20,450 per bale, while February delivery settled at Rs 20,520 per bale, up by 0.84 per cent from the previous close.
Similarly, NCDEX kapas futures moved up by 1.34 per cent to Rs 1,020.5 per 20kg. At global front, ICE cotton futures gained 0.42 per cent, said USDA.
According to a report by Karvy Comtrade, MCX cotton may witness prices correction at the current level as rising price disparity of cotton and kapas due to rally in prices is being hampered industrial buying. Demand is likely to be subdued at higher level whereas supply has been increasing gradually at physical market. About 160,000 bales of cotton have arrived and it is expected to increase in coming days.
But overall supply of cotton is still below the average, which may restrict major losses in prices. Moreover, anticipation of limited export demand from China in view of start of lunar holidays may prompt speculators to cut their long positions. India has exported about 2 million bales in the current season, say different market sources. About 12.82 million bales have reached the market till January 19, according to CCI data. USDA has increased its forecast of ending stocks for India from 11.79 million bales of 480 lb each to 12.09 million bales, higher by 2.5 per cent where total consumption for 2016-17 is pegged at 23.25 million bales, lower by 4.1 per cent against last year.
Source:- Mydigitalfc.com
