Cotton futures rally more than 1% on India crop outlook


Forexpros – Cotton prices rose to a four-day high on Tuesday, extending gains from the previous session as concerns over declining cotton output prospects in India and a flurry of speculative buying pushed prices higher.

On the ICE Futures U.S. Exchange, cotton futures for May delivery traded at USD0.9052 a pound during European afternoon trade, rallying 1.16%.

It earlier rose by as much as 1.35% to trade at a session high of USD0.9077 a pound, the highest since April 5.

Concerns over India crop outlook intensified after the Cotton Association of India said in a report earlier that cotton plantings will decline for the first time in four years as a ban on exports may spur farmers to switch to other crops.

According to the industry group, cotton acreage plantings in the season starting this month will drop by nearly 15% from a year earlier. The agency failed to give a final production estimate.

There has been speculation that lower domestic prices may prompt farmers in key cotton-growing states of Andhra Pradesh and Karnataka to switch from cotton to other crops to take advantage of higher prices.

“Farmers in India are likely to switch to competitively-priced alternative crops while seeking to diversify their crop mix and risk in response to India’s topsy-turvy cotton export policies,” the USDA said on March 30.

High prices for peanuts, soybeans and corn may encourage farmers to shift away from cotton in central, western and northern India, the agency said.

A smaller Indian harvest may potentially reduce exports next year, tightening global supplies.

Indian farmers sowed cotton to a record 12.2 million hectares in the 2011-12 season, harvesting 34.5 million bales, according to the country’s Cotton Advisory Board.

The nation’s cotton crop in the upcoming 2012-13 season may fall to 32.3 million bales from 34.3 million bales this year, according to a USDA report on March 30.

India is the world’s second largest cotton producer. It is also the second biggest exporter of the fiber, trailing only the U.S.

Cotton prices soared by 4.5% on March 5, when India unexpectedly announced that it banned all cotton exports to secure domestic supplies.

While the export ban was partially lifted less than a week after it was imposed, registration for additional cargoes will not be allowed in the current marketing season, according to Trade Minister Anand Sharma.

Meanwhile, prices found further support amid market talk that hedge funds and large institutional investors started to rollover their positions out of the spot contract before it goes into delivery later this month.

The May contract is set to expire on Friday, April 13, before switching to the July contract.

Cotton traders were looking forward to the USDA’s World Agricultural Supply & Demand Estimates report for April due out later in the day to see whether the agency increases its estimate of U.S. cotton exports.

The U.S. is the world’s biggest exporter of cotton and the third largest producer of the fiber, trailing only China and India.

Elsewhere, on the ICE Futures Exchange, coffee futures for May delivery rose 1.1% to trade at USD1.7968 a pound, while sugar futures for May delivery dipped 0.1% to trade at USD0.2446 a pound.