Business

CCI's Selling Plan Puts Further Pressure On Indian Cotton Prices

No other major fundamental is working now, only CCI is leading and influencing Indian cotton prices. Indian cotton prices have been in a downward spiral since February 2020, prices are continuing to fall, and it seems prices have yet to touch the bottom. This season, only CCI's activities can decide if prices will fall or rise. Cotton fundamentals continue to remain very bearish. India is keeping historically high cotton stock with poor consumption numbers. In this scenario, world's cotton traders are closely following CCI's activities, to understand price trends of Indian cotton, which will influence world prices and consumption. CCI support v/s bearish market As of now, Indian cotton is the cheapest cotton in the world, and there is some more space for prices to go down further, as CCI is carrying record stocks and willing to reduce these stocks before entering into new season 2020-21 with higher MSP and good crop projections. After introducing lucrative bulk discounts recently, CCI has brought down base prices as well. Recently CCI reduced base price by Rs 300-500 per candy which brought CCI prices further close to open market price. However, buying remained limited. So in order to sell its cotton, CCI may need to keep reducing prices, which is putting further pressure on open market prices. CCI was able to sell some quantity in northern India recently. However, ginners and stockists are bleeding in this bearish market. There are reports of panic selling in the market, with stockists and ginners earning a decent margin while selling cotton at Rs 32500-33000 per candy, depending on quality ( S-6/29mm & 75RD). Arrivals continue at around 45000-50000 bales per day on all India basis, out of which majority is coming from Gujarat and Maharashtra. Daily arrivals are almost equivalent to daily consumption by spinners or slighlty lower, as mills are not running at full capacity even now. Maharashtra government has procured 50% of cotton in Maharashtra, which has reported all-time high 44 lakh hectares of cotton acreage and production of 407 lakh quintals (80 lakh bales each of 170 kg) of cotton. Strengthen Indian rupee The Indian rupee, one of the worst-performing currencies in Asia, may finally be ready to start recovery. The rupee may strengthen to 75 per dollar by the end of December, an advance of about 1% from Friday's close of 75.65. The currency has dropped approximately 5.6% so far in 2020. The rupee is set to recover in the coming months. Kickstart of monsoons Upto June 26, cumulative rainfall was 22% above normal as against a shortfall of 36% in the same period last year. Regionally, on a cumulative basis, rainfall has been abundant in Central India, recording a surplus of 44% as against a shortfall of 44% in the same period last year. Out of the 37 sub-divisions across India, 14 have received excess rainfall, 15 have received normal rainfall, and 8 have received deficient rainfall. Indian cotton sowing progress Ministry data showed total sowing area this year at 31.56 million ha (around 31% of normal area for the entire year) by June 26 compared with 15.45 million ha covered by the same time last year. Cotton sowing reported till 26th of June was 71.692 lakh hectares against 27.082 lakh hectares last year same period. Agro climatic condition was different last year with the seasonal rainfalls delayed by over three weeks and ended normal with the long period average (LPA). The increase in kharif acreage points to yet another season of bumper agri harvest this year. Rural economy As the economy begins to normalise from the lockdown restrictions, various segments are witnessing differential pace of recovery. In an otherwise gloomy environment, rural economy (particularly agriculture) seems to be emerging as a bright spot, clearly outperforming the urban economy, helped by government's policy thrust along with prediction of normal monsoons. We can continue to expect the outperformance of the rural economy over the urban economy through the rest of the year given adequate focus by the government & limited spread of Covid-19, along with robust agricultural output. India-China trade Cotton is one of the major commodities trading from India to China, Initially China was the biggest buyer for Indian cotton but now Bangladesh has the highest share of Indian cotton export. After Covid-19, the ongoing India-China stress at LAC can lead to disruptions in trade, even as no major disturbance has been reported till now. India depends on China for a wide range of important items, from antibiotics and raw materials for its pharmaceutical industry to solar panels for its renewable energy programmes to key components for low-cost smartphones. Increased import duties have helped reduce India's imports from China to approximately US$ 65 billion, and pared the bilateral trade deficit to US$ 48.7 billion. In April, the Prime Minister's new vision of a `self-reliant India', could further bring down imports, while pushing up production within the country. But we are still far away from India-China trade balance Texas-US cotton crop progress Soon USDA will release its planted acres report. The average industry estimate stands at 13.15 million acres, compared to the previous March planting intentions of 13.70 million acres. Planting is now complete, and Texas continues to be a concern due to drought conditions on the High Plains. According to the crop progress report, 36% of Texas crop is rated poor. West Texas has only a slight chance of rainfall over the next 10 days. The region was hit with triple digit temperatures along with high winds in the first part of this week. Weekly US cotton export sales as on 6/18/2020 Net sales of 102,700 RB for 2019/2020 were up 5% from the previous week, but down 23% from the prior 4-week average. Increases were reported primarily for China (94,500 RB, including decreases of 1,300 RB), Turkey (4,100 RB), Vietnam (3,600 RB, including 1,500 RB switched from Hong Kong and decreases of 1,000 MT), Bangladesh (2,800 RB, including decreases of 400 RB), and Pakistan (1,500 RB, including decreases of 700 RB). For 2020/2021, net sales of 67,900 RB reported for China (36,500 RB), Vietnam (33,400 RB), Peru (2,200 RB), and Bangladesh (400 RB), were offset by reductions for Turkey (4,100 RB) and Indonesia (600 RB). Overall sentiment continues to remain bearish, and Indian cotton market has more space to come down further. (Vimal Verma is a cotton trader)