Cotton Seed Cake Price Drops by Rs. 250-300 Month on Month: Will the Downward Trend Continue?

Cotton seed cake has been trending lower for the past few weeks. The offers at Kadi and Akola have fallen by roughly 250-300 rupees a quintal month on month. A high number of deliveries are expected against the July expiry and this has been a major reason for the significant fall in prices.

The buyers who had procured the commodity at prices above Rs.2800/qtl were reportedly offering most of their produce for sale in the open market. This factor also added to the bearish trend. The planting activity has improved in the month of July, which keeps sentiments eased in the entire cotton basket. As of July 15, the sowing of cotton had increased by more than 6% compared to last year’s corresponding period. Around 31.83 lakh hectares were planted till June end versus 37.84 lakh hectares during the last year’s corresponding period.

The active month contract of cotton cake at NCDEX is currently down more than 9 percent. The ginning operation of cotton has slowed down due to higher cotton prices. In the 2021-22 marketing year, it was mainly the strength in cotton seed (Kapas) and cotton fiber that has favored the upward trend of cotton cake market, in addition to improving stockists demand for this commodity. When compared with the July 2021 average closing price of the first month derivative of NCDEX, the August contract has lost Rs.500/quintal approximately.  

Falling futures prices keep buyers slightly confused at current offers. Most of them are waiting for further updates in the demand-supply projections for the remaining part of 2022. Another area of concern amongst buyers is that when prices could not sustain above Rs. 3400/qtl, when cotton production was 355 lakh bales (in 2021-22 FY), when the production prospects are higher for this marketing year, the market participants are not very optimistic regarding prices to sustain above the 3000/3050 level in coming months. Sources estimate that sowing of cotton may increase by more than 25 percent subject to a favorable monsoon season. If there are two proper rain showers before the third week of July then the acreage is most likely to increase.

The summer months are usually a low consumption period for the daily industry. As a result, demand for cake has decreased in the last couple of months. But prices have turned fairly cheaper and demand for the dairy feed is expected to improve in the next few weeks. (Cotton cake is used largely in the dairy feed ration). The demat inventories which will be available after the July expiry can put some pressure in case demand does not improve). The spot offers below Rs.2650/2600 per quintal (Fair Average Quality) will be comfortable for the stockists as well as oil cake manufacturers as per market talks and cotton availability is quite less.

All in all, a sharp recovery is unlikely this month, yet the downside shall remain capped as of now. Traders feel that physical demand will improve in the near term, in case the buyers get fresh discounts of Rs.20-30/qtl from the prevailing rates.