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Cotton Market Panorama – Trade Prospects Improving

Abhijeet Banerjee
Abhijeet Banerjee

Cotton (Lint) markets have stabilized of late due to limited buying activity in domestic centres, with average spot offers unable to increase as spinning mills have slowed down their purchases. These mills had to slow down their purchases because they reportedly have more than 30-45 days cotton stocks with them. Enquiries for yarn have also reduced in recent weeks. Exports inquiries are lesser these days since India sells its cotton at 5-7 percent discount to global prices. But since Indian prices are nearly 5-7 percent above global prices, there was no export parity at present. This is another factor capping the upside movement of cotton in recent weeks. Once prices turn competitive in the exports market then exports possibilities shall rise again. The CAI (Cotton Association of India) president Mr. Atul Ganatra is optimistic about India to export near to.60 lakh bales this season against 50 lakh bales exported last season under favorable price scenario. (CAI), in its November estimate, has retained cotton crop estimate for the ongoing 2020-21 season at 356 lakh bales of 170 kg each, equivalent to 378.25 lakh running bales of 160 kg each. CAI’s Crop estimate for previous season 2019-20 was 360 lakh bales of 170 kg each (i.e. 382.50 lakh running bales).

INDIA’S DEMAND SUPPLY BALANCE SHEET

The CAI has recently estimated domestic consumption at 330 lakh bales, which indicates an increase of 80 lakh bales in cotton consumption for the cotton season 2020-21 from the previous year’s consumption estimate of 250 lakh bales. The domestic consumption is expected to reach its normal level this year after the disruptions and labour shortage caused on account of the lockdown imposed in the country against spreading of COVID-19 pandemic. The CAI has estimated exports for the season at 54 lakh bales, which is higher by 4 lakh bales than that estimated for the previous cotton season. These two aspects coveys improving trade prospects for the Indian cotton market. Meanwhile the carry-over stock at the end of the cotton season 2020-21 is expected close to 93.50 lakh bales, as against 107.50 lakh bales at the end of the season 2019-20.

WORLD’S DEMAND SUPPLY BALANCE SHEET

This month’s USDA report is seen as a favorable fundamental report, indicating increasing prospects for global trade. The report was released last week and this month’s outlook for U.S. cotton includes lower production, higher exports, and lower ending stocks. Production is lowered by 1.1 million bales, mainly due to a 900,000-bale reduction in Texas. These comparisons and those mentioned below are in context to the November month’s estimate of the USDA. US is the strongest competitor for India in the exports market.

US cotton mill use is unchanged, but exports are raised 400,000 bales to 15.0 million as world consumption and U.S. export sales rise. Ending stocks are 1.5 million bales lower, at 5.7 million or 33 percent of use. This stocks-to-use ratio would be 8 percentage points lower than in 2019/20 and the second highest since 2007/08. Projected world 2020/21 ending stock estimate on the other hand is lowered by 3.9 million bales lower this month, reflecting drop in production and higher consumption. A 2.2-million-bale decline in global production is mainly because of lower U.S. output, including reductions of nearly 5 Lakh bales for India and Pakistan both, and other smaller adjustments. Besides, consumption is projected 1.6 million bales higher, and at 115.6 million bales, versus previous month’s estimate. Compared to last month, 2020/21 consumption forecasts are 1.0 million bales higher for India and 500,000 bales higher for China, with smaller changes for Pakistan and Thailand. World trade in 2020/21 is projected more than 300,000 bales higher this month, with increased imports for China and Pakistan more than offsetting lower forecasts for Bangladesh, Thailand, and Indonesia. World ending stocks are now projected at 97.5 million bales, which is 1.9 million lower than in 2019/20.

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