Cotton traders across the nation are currently facing a huge dilemma over
crop size and the likely behaviour of prices in the coming months. With
rainfall extending well beyond the middle of October, apprehensions have
gathered over the crop size as well as quality.
While it is clear is that the country’s cotton harvest this year will be higher
than it was last year, the quantum of increase is seen by different sections
differently.
To be sure, the area planted to cotton this kharif season (2019-20) has been
a record one at close to 128 lakh hectares (ha), up from 121 lakh ha last year.
Maharashtra, Telangana and Rajasthan have reported higher acreage.
However, we cannot ignore weather aberrations.
The South-west monsoon played truant the whole of June and most of July.
Copious precipitation was witnessed in August and September that raised
hopes of a bumper crop.
However, extended rainfall in the first three weeks of October, an unusual
phenomenon, has raised concerns about the crop size and quality.
According to the Agriculture Ministry’s first advance estimate released on
September 23, the cotton crop is placed at 322.7 lakh bales (170 kilograms
each). It has fallen short of the year’s production target of 357.5 lakh bales,
but rebounded from last year’s 287.1 lakh bales, per the fourth advance
estimate.
Subject to revision
But the government estimate is subject to revision. The first estimate of
cotton production last year (2018-19) was 324.8 lakh bales, which in the
fourth estimate was down by about 38 lakh bales.
The trade estimates are rather different. This writer has heard from different
trade representatives cotton production estimates ranging from 330 lakh
bales on the lower side to 370 lakh bales on the higher side.
However, it is unclear whether the loss, if any, caused by the recent spell of
rains, especially in Maharashtra, has been taken into account.
Under the circumstances, arrivals are expected to gather momentum after
Diwali. In other words, a realistic estimate of the crop size may be available
around November 10-15.
However, the biggest challenge for the trade is from outside the country in
the form of the ongoing trade negotiations between the US and China. Will
there be a truce between the world’s largest exporter and the world’s largest
importer of cotton?
China has reportedly agreed to purchase agricultural goods worth $50 billon
from the US and as a result soyabean rates have firmed up. Will cotton, too,
be added to the list? In anticipation, US cotton prices have begun to inch up.
Importantly, a lot of guesswork is on about the chances of China buying
cotton from India. A delegation from China visited Mumbai and New Delhi
last week.
This has raised hopes of the Asian major turning its attention to India. The
visit is also seen as a fallout of the Indian Prime Minister meeting with the
Chinese President earlier this month at Mahabalipuram.
Under the circumstances, Indian market prices stand to gain on any
eventuality — lower crop and /or Chinese purchase.
Will the Cotton Corporation of India enter the market in a big way to support
growers and ensure price support operations, is another question on the
trade’s mind. On its part, CCI appears to be ready to commence
procurement.
Source: The Hindu Business Line, India Thursday, 24 October 2019