Cotton Prices Currently in Narrow Range - Prices Likely to Appreciate in Upcoming Months

2020 Market Recap: Cotton markets were seen falling right from the beginning of the year after the Corona pandemonium started rising. While most other edible Agricultural products (mostly which are consumed on daily basis) recovered from the downward trend, post-March 2020, cotton failed to show any noticeable recovery even after March month. This is because cotton consumption is mainly linked with Industrial/textile demand and with Lockdown problems industrial/textile demand remained subdued till the first half of 2020.

The situation was seen improving from July onwards after unlocking restrictions in nations, which are traditional importers of Indian cotton were lifted. Easing restrictions in India were also seen during this period therefore raising hopes of trade/business operations to gather momentum. Between July and November months, Indian cotton was fairly discounted than its nearest competitor i.e. the USA and this was bullish for Kapas as well as Cotton markets. A decent upside rally was noted during this period and from the June lows cotton prices are currently up 25% nearly, and Kapas is up almost 20%. The upward journey halted towards the later part of November since Indian export offers had turned expensive by that time, and to attract overseas buyers’ attention, the exporters began offering cotton with some discounts. As such futures failed to sustain above higher levels. Domestic cotton prices have stabilized in recent weeks and unable to fall much from present rates since the overall view remains positive, on expectations of export/domestic demand to improve for cotton/cotton products as the unlocking of economic activities continues.

Price Appreciation Likely in forthcoming months:Improving export demand prospects are likely to keep prices on an upward track in forthcoming months. 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. Production on the other hand is projected between 350-360 Lakh bales. Domestic consumption is expected to reach its normal level this year after the disruptions and labor shortage caused on account of the lockdown imposed in the country against the spreading of the 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 covey improving trade prospects for the Indian cotton market. Meanwhile, the carry-over stock at the end of the cotton season 2020-21 is expected nearly 93.50 lakh bales, as against 107.50 lakh bales at the end of the season 2019-20.

This month’s USDA report is considered bullish by the global market participants as the report indicates improving prospects for global trade and lowering world inventory levels (because of the upgrading of world demand projection). The data included lower world ending stocks projections at 97.52 million bales, which is 1.9 million bales lower than in 2019/20. Likewise, world consumption for this year is projected at 115.63 million bales as against last year’s 102 million bales. Cotton/Kapas prices have been trading in narrow range in last few weeks but are expected to move upwards during the first half of 2021 and the trend for the second half will depend on the Kharif planting situation, existing demand situation, or prevailing export scenario.