Correction Likely In Cotton Prices But Broader View Remains Positive

Cotton continues trading with a positive bias – be it Indian or the key world markets and it is for the first time in the history when raw cotton has fetched the farmers above Rs 10,200 per quintal a level well above the minimum support price (MSP) of Rs 6,025 per quintal.

The price rise has been mainly because of the demand recovery post-COVID problems, followed by a drastic fall in the Kharif season’s production due to unfavorable climatic conditions. Indian cotton is in great demand in many countries which has added strength to the domestic market.  There are reports of a fall in cotton yields as well. The number of pickings may be higher this year since the farmers expect higher price realization.

The season for domestic cotton began from October 2021, and prices in major trade centers had already surpassed Rs 8,000 per quintal during the month. Price appreciation continued and by January 2022 we could hear of prices near the all-time high of Rs 10,200 per quintal. Most of the developed nations including the USA had started buying the commodity in huge quantities October 2021 onwards. Cotton was also in great demand in the local markets during the beginning of the season. As a result the price direction was upwards consistently.

The record prices have cheered up farmers as well as the trading community therefore selling interest is still lower on expectations of further appreciation in prices from the prevailing rates. However due to expensive offers, few are not so optimistic on further hike in the cotton market in the short run at least since local or export demand may not sustain for long at these offers. Since farmers have been holding their produce since a long time, there are chances of an increase in selling interest as the market prices are quite lucrative to earn profits.

Therefore the market may experience a correction in the next few weeks. Presently the traders are expecting only 300-310 lakh bales as against earlier estimate of 345-355 lakh bales. Therefore, on fears of getting the commodity at a higher price, any moderate fall in the market attracts stockists, exporters or millers to buy aggressively.

As the mismatch between supply and demand is expected to continue, most of the industry persons are expecting further rise in prices in the longer run.