Cotton prices jump on a sharp decline in output estimates

After bottoming out on March 23, prices of cotton turned around and recorded over 5% gain following a sharp decline in output estimates for the current crop year. Non-availability of good quality cotton also supported the move tremendously.

With this price upsurge, the benchmark Shankar 6 variety of cotton is now quoted at Rs 34,600 a candy (of 356 kg each) on Thursday in Gujarat mandi. Similar jump in cotton prices were seen in other producing and consuming centres as well.

While analysts held the current cotton prices rise as temporary, it will still hit fabric and garment manufacturers’ profit margins hard. Textile mills that have been under tremendous pressure due to subdued demand sentiment would have to face severe stress of the raw material price hike and may worsen their financial viability further.

“Now, traders are estimating cotton output to decline further to 31 million bales (170 kg each). Some go down further with the fibre output forecast at 30 million bales for the current season. Now, we are at the fag end of the season. Hence quality has also become an issue of late. These two factors have supported cotton price moving up in the last three weeks,” said M B Lal, former chairman of the Cotton Corporation of India (CCI) and managing director of Shail Exports, a city based trader.

The forecast made in February by the Cotton Advisory Board (CAB) headed by Kavita Gupta, Textile Commissioner, under the Minister of Textiles, estimated cotton output at 35.20 million bales for the season 2015-16 (October-September) as compared to 38 million bales recorded for the last year.

While the sowing area reported to be similar or somewhat higher than last year, whitefly attacks in Punjab and neighbouring sates damaged cotton output by over 50% in these states. Interestingly, average cotton yield was estimated to have declined this year due to deficient monsoon and thereby reduced moisture in the in the standing plants. If traders’ estimate comes true, India would have hardly any carryover stocks for the next season.

Arun Dalal, an Ahmedabad-based trader, sees an improvement in the market sentiment due to the factors mentioned above. “As a result if lower output, arrivals have reduced to 60,000 bales now, just half of that around same time last year,” said Dalal.

Price increase in Indian markets moved in tandem with global markets as the benchmark Cotton No 2 for near month delivery jumped by 4.18% to trade currently at 60.32 cents/pound (lb) on the InterContinental Exchange (ICE).