At the start of the cotton year 2018-19 (Oct-Sep) delay in harvesting and concerns about output amid scanty rains kept cotton prices higher. In November, cotton prices fell due to poor exports and increase in arrivals, post-Diwali.
However, prices should once again bounce considering the latest estimates of the Cotton Association of India (CAI) regarding the 2018-19 crop.
The major cotton belts of Gujarat and Maharashtra received poor rainfall in the 2018 monsoon, and yield has naturally been affected. Considering this, the Association's November estimates lowered India's 2018-19 cotton production from its earlier (October) estimates by three lakh bales to 340.25 lakh bales. The current estimates are almost 6.8 percent lower than the 2017-18 season production.
Unfavourable weather led to the CAI reducing crop estimates for Gujarat by three lakh bales, Maharashtra by one lakh and Telangana by 1.5 lakh, from previous estimates, though Haryana, Rajasthan and Punjab production estimates have been raised.
Estimated exports for 2018-19 have been slightly raised, to 53 lakh bales, but are still about 23 percent lower than in 2017-18. Imports, at 27 lakh bales, are substantially higher than last year's 15 lakh bales. Despite the upward revision in the import figure, 2018-19 ending stocks are estimated at only 13.25 lakh bales, down 13 percent from October estimates and 42 percent from 2017-18. Thus, the long-term demand-supply situation for domestic cotton will be tight.
Global markets are no exception. There too, we see a deficit as consumption is likely to overtake production in the 2018-19 season. World cotton ending stocks are expected to decline for a third year in a row.
The latest World Agricultural Supply and Demand Estimates (WASDE) put world cotton production at 259 lakh tonnes, while consumption is estimated at 274 lakh tonnes for 2018-19 season.
On the price front, harvesting pressure in the US has kept ICE cotton futures depressed in the last couple of months. However, seasonal supply pressure will decline gradually and thus we may see global cotton prices recovering in the short to medium term.
Usually, seasonal price patterns would led cotton prices to bottom in November-December and thereafter rise gradually. This season, due to the late start to harvesting in India, we may see arrival pressure of the first picking to continue till end-December.
Thus, the seasonality factor and the tight supply-side fundamentals should push cotton prices higher in the medium term.
The author is Head — Commodity Research & Advisory at Anand Rathi Commodities.
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Source: Moneycontrol
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