Cotton industry gives forward contracts a miss

AHMEDABAD: Unlike last year when forward contracts for cotton had been signed in May, this year no agreements have been entered into by ginners, millers, traders and exporters. Poor delivery and counterparty default by all players in 2010 has led to this situation.

But industry sources say this will not impact the trade as a similar situation had prevailed in 1994-95. The crop is in flowering and ball-formation stages with early harvests to begin from September in Punjab.

“Forward contracts have not been signed till date. Exports are not open and hence there is no clarity on pricing. The US, whose crop will arrive in September as in India, has sold half of its exportable surplus but we have not even begun. Pakistan, whose crop has started arriving from Punjab and Sindh, has already started selling in the international market,” said Cotton Association of India president Dhiren N Sheth. He added that the confidence of exporters, traders and ginners has been shaken due to last year’s price volatility.

According to an industry estimate, forward contracts for over 40 to 45 lakh bales (a bale weighs 170 kg) had been signed in the previous year till date. “In Gujarat, over 15-17 lakh bales contracts had been signed in 2010 compared to no contracts this year,” said Saurashtra Ginners Association vice-president Arvind Patel. “Poor delivery, non-settlement of contracts by ginners, traders and exporters, increased moisture and waste in cotton has led to this situation,” he added.

A local broker from Punjab said uncertainty in prices has ensured that companies were buying from ginners according to their requirement. Shankar 6 (29 MM) was quoted at Rs 38,000 per candy (a candy weighs 356 kg). Punjab’s J-34 (25 MM) was selling at Rs 35,000 to Rs 36,000 per candy.

“After the government removed restrictions on export and permitted shipments under open general licences for the remainder of the current season (the cotton season runs from October to September), traders are expecting further exports of 15 to 20 lakh bales this season. The Cotton Advisory Board has fixed a meeting on August 30 to discuss exports,” said B K Patodia, chairman and MD of GTN Textiles and past chairman of The Cotton Textiles Export Promotion Council.