Cotton: The “White Gold” of 2021 For Farmers & Trading Community

The Indian trade as well as farming community had generated handsome returns in 2021. Cotton has been giving decent returns since May 2020. Cotton has shown significant appreciation of around 65% in 2021, testing new record highs. . Indeed, this commodity can be considered as the “White Gold”. Gold is usually purchased and stored for getting good returns in the longer run.

Indian cotton prices have appreciated because of strong domestic and global demand, coupled with lower supplies. The basket had lost the upward steam after the first week of November mainly because of a rise in the new season arrival pace.

Cotton recovered from the bearish phase after November, as the arrival pressure started easing, Cotton prices in India have stabilized in recent weeks and started increasing on an optimistic view regarding export/domestic demand for cotton/cotton products. Interesting to note, MCX cotton has been trending upwards since May 2020. The benchmark contract closed near the Rs.34000/bale mark in 2021 after testing a low of Rs.14800/bale during May 2020.

As per the recent data, global cotton production was 26.43 million metric ton in market year (MY) 2019-20, which dropped by 7.60 per cent to 24.42 million metric ton in MY 2020-21. World’s cotton exports stood at 8.98 million metric ton in MY 2019-20, which increased to 10.54 million metric ton in MY 2020-21 with a rise of 17.37 per cent. The global cotton consumption went up by 17.29 per cent from 22.44 million metric ton in MY 2019-20 to 26.32 million metric ton in MY 2020-21. These factors have kept average global prices of cotton on the upward side in 2021.

Another Good Year for Farmers: Consumption of cotton is consistently on the rise due to increasing demand and mitigating impact of COVID-19 in India, Pakistan, Mexico and Bangladesh. As compared to 2020-2021, the global cotton balance sheets for 2021/22 include higher production and consumption, and slightly lower ending stocks. The projected global consumption is up 700,000 bales. World ending stocks are projected at 86.9 million bales in 2022 which is 2.4 million bales lower than in 2021.

India’s cotton production for 2021-22 is estimated at 330 Lakh bales, lower than 2020-21 by roughly 30-35 Lakh bales. The production outlook of the Indian crop has been lowered because of heavy rains during November in the growing regions of Maharashtra and South. Pest attack in North India is the other factor for reduced crop estimate. As the global markets are constantly maintaining the strong trend, domestic prices are making new highs comfortably. CFTC's weekly report showed managed money firms were 74,825 contracts net long in cotton as of December 28.

That was a 4,039 contract addition of the long positions, driven by the price favoring factors of US cotton. As export prospect for the cotton products remain optimistic and economic recovery continues domestic consumption outlook also improves for the cotton complex basket i.e. Cotton seed/cotton fiber, cotton wash oil, cotton cake etc. All in all, it will be another good year for farmers and other value chain participants, dealing with the cotton business.