Business

Cotton Futures Jump As Buyers Vie For Supplies

Cotton prices rose a fourth day on persistent signs of tight supplies amid the firm demand that has kept prices for the fibre up all year. March futures jumped 3% to $1.1209 a pound in New York, breaching its 50-day moving average, a bullish technical sign. The contract is also commanding a rare, record-large premium over May, which means “demand for cotton nearby is perceived to be greater than in the future,” said Louis Rose, director of research for Rose Commodity Group in Tennessee. In other words, buyers want cotton now, and there isn’t enough of it. Export sales from top shipper US were “decent” last week, Rose said, adding that holiday trading is often volatile. The commodity surged 43% in 2021 driven by initial projections for a second straight world deficit. Now, however, some forecasters are shifting to a surplus, because producers may ramp up output given the higher prices. Global shipping bottlenecks and US trucking headwinds are still keeping supplies from reaching destinations, and buyers are tapping domestic stockpiles instead. At depots monitored by ICE Futures US, inventory is near all time lows, slumping 99% this year. India’s cotton exports may decline on higher prices As Indian cotton prices continue to rule high, the trade fears a decline in exports for the current season to September 2022. Cotton exports have started on a sluggish note and shipments during October-November, the first two months of the season, are down 42% over the same a year ago. According to Cotton Association of India (CAI) estimates, exports were seven lakh bales (170 kg each) during the first two months of the season compared with 12 lakh bales in the same period a year ago. “At these high rates, we will be not able to achieve our export target of 48 lakh bales. We may hardly touch 35-40 lakh bales in exports, which will be 50% less compared to last year’s exports of 78 lakh bales,” Atul S Ganatra, President, CAI, said. Higher prices Cotton prices are ruling high across the country and growers are seen holding back their produce, anticipating better prices. This is reflected in the market arrivals, which were down 15% till November end. On the benchmark Intercontinental Exchange or ICE, March futures contract is traded around 106 cents per pound. At the current price levels, the Indian cotton prices are equivalent to around 120 cents per pound on the ICE, making it expensive for the overseas buyers. Trade sources said there’s not much of buying interest for exports now, in a market where prices are on the higher side even during this peak season. Sources said prices are ruling higher only due to insecurity of low arrival and crop expectations. Unseasonal rains during October-November impacted the harvest, triggering quality concerns. “Exporters are buying at a very slow pace,” said Ramanuj Das Boob, a sourcing agent for both domestic mills and multinationals in Raichur, Karnataka. At the prevailing prices, exports will definitely be less in the year ahead, he said. Retaining produce Ganatra said though arrivals are seen improving in December, farmers are not selling the top-quality cotton and are holding it back. Farmers are bringing to market the cotton harvested in third and fourth picking, while are keeping the first and second pickings at home, expecting higher prices. Ganatra estimates that farmers across the country are holding around 150 lakh bales of top-quality cotton. The first and second picking of cotton is considered to be the best quality. “It is coming very slowly into the market,” he said. According to recent estimates for the 2021-22 season, CAI has pegged the crop size at 360.13 lakh bales — higher than the previous year’s 353 lakh bales. The trade body expects the domestic demand to stay flat at last year’s levels of 335 lakh bales.“While there’s unlikely to be any major change in the crop size, the marketing season may prolong till August-September as farmers may continue to hold on their produce,” Ganatra said. There are expectations of lower demand for garments due to the resurgence of new Omicron coronavirus variant, higher supply, and as higher prices are hurting demand for supplies from top shipper US. Further, demand is muted in top producer India as fabrics manufacturers were hesitant for new purchases due to the proposed hike in taxes from January 1. Meanwhile, the USDA in its December report estimated 2021/22 global production to drop by 200,000 bales as a 1.0 million bale drop in Pakistan more than offsets gains in Benin, Turkey, Uzbekistan, and Cameroon. Also, world cotton ending stocks were projected 1.2 million bales lower due to lower beginning stocks, a smaller production, and slightly higher consumption. Mali's cotton harvest for the 2021/22 season is expected to be 731,000 tonnes, 10% below an earlier forecast due to insufficient rain in some areas and localised floods elsewhere, data from the cotton producers' association showed. In March, the government forecast that cotton production would rebound this season to 810,000 tonnes after plunging nearly 80% in 2020/21 to 147,200 tonnes because the pandemic upended demand and farmers went on strike. In spot market, cotton gained by Rs 310 to end at Rs 32500. Cotton is getting support at Rs 32980, and resistance is now likely to be seen at 33530, a move above could see prices testing 33740. China condemns US Act China National Textile and Apparel Council (CNTAC) condemned the United States' so-called "Uyghur Forced Labor Prevention Act" being signed into law. The Act damages China's overall interests and aroused great indignation from Chinese society, textile industry and consumers, according to a statement issued by the CNTAC along with its 12 subsidiary associations. The statement said the US unilateral move of blocking commodities produced in Xinjiang into international supply chain is a behaviour of hegemony and it set an abominable and dangerous precedent in the field of international economic and trade rules. In the statement, the CNTAC reiterated there's no "forced labour" in the northwest Chinese autonomous region and Xinjiang cotton plays an important role in international supply chain which accounts for nearly 20% of global cotton output in 2021 with an yield of 5.129 million tonnes. "We call on the United States to face up to the solemn position of the Chinese government, industry and consumers, and correct wrong legislative and administrative measures as soon as possible," read the statement.