Record carryover stocks may keep cotton prices lower than MSP this season, exports may gain

A record carryover of 107.5 lakh bales (170 kg each) of cotton this season (October 2020-September 2021) will put pressure on the commodity’s prices and keep them below the minimum support prices (MSP) fixed by the Union Government for the most part of the season.

According to Atul S Ganatra, Cotton Association of India (CAI) President, the record cotton carryover stocks this season is against 32 lakh bales last season.

“The huge carryover stocks will put pressure on cotton prices, which will rule below MSP for almost the whole of this season,” Ganatra said.

Currently, prices for Shankar-6 ginned variety, the benchmark for exports to the global market, are ruling at Rs 40,200-40,300 a candy (356 kg). In terms of MSP, it should be ruling at around Rs 48,000.

Ginned cotton is the one processed from raw cotton or kapas after the seeds are removed and it is cleaned.

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Subramani Mancombu

Journalist|Independent Journalist

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On October 21, kapas modal price, rate at which most trades take place, ruled at Rs 5,150 a quintal against the MSP of Rs 5,515. During the same period last year, kapas ruled at Rs 5,325-5,340.

Arrivals, too, have been lower this year mainly because of rains in key growing states such as Maharashtra, Gujarat, Telangana, Andhra Pradesh and Karnataka. Between September 16 and October 21 this year, kapas or raw cotton arrivals are 2.28 lakh tonnes against 4.22 lakh tonnes during the same period a year ago, according to Ministry of Agriculture data.

This is another indicator of the effect of the huge carryover stocks on the prices. Prices are expected to be under pressure despite the area under cotton dropping two percent this year across the country, the CAI president said.

The Ministry of Agriculture has estimated the area under cotton this year at 129.50 lakh hectares against 133.73 lakh hectares last year, down two per cent.

“There has been a 15 percent drop in the Gujarat area under cotton. This year, farmers in the western State have switched over to groundnut from cotton,” Ganatra said.

Data from Gujarat say that the area under cotton slid to 23 lakh hectares this year from 27 lakh hectares last year.

One of the reasons for farmers in Gujarat to switch over to groundnut from cotton is the lower price they received last year. The onset of the Coronavirus pandemic dented their hopes of better price as the textile industry had to shut down following the nation-wide lockdown imposed by the Centre.

“Actually, prices could have been even lower but for the Cotton Corporation of India (CCI) procuring the commodity and holding the priceline. CCI has been raising prices of its offerings gradually since March when prices were around Rs 33,000 a candy,” said Anand Popat, a cotton exporter and ginner.

But the CAI President said that CCI stocks were also putting pressure on the prices this year.

CCI procures cotton from farmers at MSP across the country and then sells to traders, exporters and industrial users.

“CCI has 50-60 lakh bales stocks of last season’s cotton with it. The corporation is offloading the stocks slowly by raising prices regularly,” Popat said.

The cotton market has witnessed an eight percent rise in prices since the first week as the real picture on the commodity’s production is not available.

“We will be making our estimates on cotton production in the next two weeks,” said Ganatra.

Rains in some of the cotton-growing States such as Telangana, Andhra Pradesh, Maharashtra and Gujarat have led to speculations that the crop this season could be lower than last year’s 360 lakh bales.

Some speculate production to be above 350 lakh bales. Popat said production could be even higher.

The lower price in the domestic market could, however, buoy cotton exports this season, Poppat and Ganata said unanimously.

Currently, cotton prices in the global market are ruling at Rs 43,000 a quintal for varieties at par with Shankar-6 giving Indian cotton an advantage.

“We have been getting enquiries over the last one week from Bangladesh, China, Vietnam and Indonesia,” said the CAI President.

“Last week, contracts were signed for exports of two lakh bales of cotton,” said Popat, adding that the quality of cotton arrivals this year is good.

Both expect cotton exports this season to be higher than last season’s 50 lakh bales. Two advantages Indian exporters enjoy are lower freight to destinations such as China, Bangladesh, Vietnam and Indonesia besides offering consignments in smaller vessels.

With CCI procurement expected to pick momentum next month, Popat expects cotton prices to rise further. But Ganatra sees the rise limited in view of the huge carryover stocks.
Currently, CCI procurement is tardy with farmers in Gujarat and Andhra Pradesh complaining that they have to sell their produce at a lower price. The corporation has said that it plans to set up over procurement centres for cotton this year.

But Ganatra sees the rise from the CCI procurement limited in view of the huge carryover stocks. “CCI proposes to buy 125 lakh bales this season. Say if the production is 350 lakh bales, what about the rest 225 lakh bales apart from the carryover?” he wondered.

“I don’t see price beyond Rs 43,000 a candy,” the CAI President said.

Popat said speculators on futures market could also push up prices, particularly on fears that global stocks at the end of the season could be lower. On Thursday, November cotton futures on Multi Commodity Exchange opened ended at Rs 19,980 a bale after closing at Rs 20,020 the previous day.

“I don’t see price beyond Rs 43,000 a candy,” the CAI President said.

One positive outlook for cotton growers is that the textile mills have begun to function. “They are operating at 95 percent of pre-Coronavirus levels,” Ganatra said, adding it should help improve consumption that had dropped since March due to the Coronavirus pandemic.

(Subramani Ra Mancombu is a journalist based in Chennai, who writes on topics in commodities and agriculture)