Rising cotton prices to help growers get higher returns

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Rising cotton prices have created new opportunities of better margin for growers and they are expected to get higher returns for their crop, arriving next month. Cotton traders said that higher production cost and low prices of the cotton were eroding crop sector profitability for past few years, thereby putting pressure on farmers’ income.

They said pressure on the income also discouraged growers from using farm inputs including fertiliser and pesticides that resulted in lower cotton output last year. Cotton production fell by 28 percent at the end of last season and hence the target was missed by a wide margin.

As per Pakistan Cotton Ginners Association (PCGA) statistics, the country produced some 9.7 million cotton bales against the target of 15 million bales and 14.9 million bales production in 2014-15. Cotton production during last season was lowest since FY04. However, for the last 10 days, domestic cotton prices are on the rise touching six-year high of Rs 7,000 per maund, mainly due to shortfall in the crop.

Cotton prices have gained Rs 1,000 per maund in the domestic market and were being traded at Rs 7,000 per maund Tuesday compared to Rs 6,000 per maund a week earlier. Previously, cotton prices in the domestic market touched this level in 2010-11, when the demand was higher than production, they added. Official rates of Karachi Cotton Association (KCA) have surged by Rs 700 per maund to Rs 6,450 Tuesday compared to Rs 5,750 per maund on July 11, 2016.

“Excessive rains and pest infestations, especially pink-bollworm had a detrimental effect on the last cotton crop,” said Naseem Usman, a leading cotton trader. In addition, growers were unwilling to pour more money into expensive pesticides as return on their investment was very low due to lower raw cotton prices in the domestic market, he added.

The lower production and rising cotton demand in the domestic market may increase cotton import, resulting in a burden on the country’s import bill, Naseem added. He said Pakistan imported some 3.5 million bales last year and it is expected to import over 4 million cotton bales now.

Following increase in raw cotton prices, phutti and cotton yarn prices are also on the increase. With an increase of Rs 300 per maund, phutti prices have reached Rs 3,600 per maund in Punjab and Rs 3,500 per maund in Sindh. Cotton yarn prices have increased by around 25 percent to Rs 11,500 per bag of 100 pounds from Rs 9,950 during last one and a half months.

As the market is expecting world-wide cotton shortfall this year, cotton prices are likely to remain stronger in coming days, he said and added that the rising cotton prices will benefit growers, which were facing losses or lower profitability for last few years due to lower commodity prices and higher crop inputs. “We are expecting the with higher cotton prices, growers will focus on the crop to gain better cotton yield,” he maintained. Ihsan-ul-Haq, Chairman, Cotton Ginners Forum said international cotton prices gained some 13 percent in last one week to reach 2-year high mainly due to lower inventory levels predicted by the USDA in its recent report. The USDA has lowered its forecast for global cotton stockpiles in 2017 to 91.3 million bales, down from 94.7 million bales projected in June. The latest inventory number would be a five-year low, he added. He said the higher rate is good news for growers as they will get more profit on their crop with lower cost. Presently, urea and other inputs including pesticides prices are on the lower side and this factor will also help growers gain improved margins on cotton crop, he added.

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