Weekly: India Cotton Rises On Strong Export/Mills Buying; Eyes More Gains Ahead

MUMBAI (Commoditiescontrol) – Cotton prices bounced back at major trading centres across the country during the last week (October 8-12) helped by strong buying by exporters amid good overseas enquiries, followed by lower crop estimates and bullish cues from U.S.market.

Cotton prices posted good gains in the range of 2.25% to 2.80% mainly in Punjab, Haryana and Rajasthan as supply of new cotton is improving gradually along with quality. According to trade sources, around 80-90% of cotton has already been bought by exporters. Modest upside of 0.6% to 2.8% was witnessed in central India (Maharashtra, Madhya Pradesh and Gujarat). On the other hand, prices were in negative territory in south India, i.e. Andhra Pradesh, Telangana and Karnataka.

The daily average cotton arrivals in the country during the week increased by over 43% at 50,800 bales (170kg) versus 35,517 bales a week ago. The present daily arrivals were mainly dominated by north India with share of around 42%.

Cotton arrival in Punjab, Haryana and Rajasthan during the week averaged at 21,400 bales, whereas it was 18,100 bales in central zone (Gujarat, Maharashtra, Madhya Pradesh) followed by 3,200 bales in south India.

According to industry experts, “The daily cotton arrival this week is expected to reach to 1 lakh bales.”

Cotton Corporation of India (CCI) is likely to start procurement this week in many states at minimum support price fixed by the centre.

The exporters are the main buyers of cotton at present covering for their October and November commitments. India cotton at presently is being offered somewhere between 82-87 cents per pound FOB for Bangladesh, China and other destinations.

Mills too are active in buying cotton as stocks with them are depleting at faster pace. Mills have not made major procurement of cotton during the last 30-45 days due to tight availability and higher rates, but now they are likely to buy aggressively in order to replenish stocks for smooth operations.

The concerning factors for the mills at present are slow sales in cotton yarn, however rising crude oil and trade war between U.S. and China is likely to provide boost to sales ahead.

USDA in its October release has made revision in India’s cotton ending stocks for MY 2018-19 (Aug-Jul) at 115.07 lakh bales (170kg) from 152.17 lakh bales estimated in September, while production, import and export numbers were kept unchanged at 367.59 lakh bales, 19.23 lakh bales and 56.35 lakh bales, respectively.

USDA: Historic Revision In India’s Balance Sheet
Historical revisions have been made to India’s balance sheet for the years 2002/03 through 2013/14, with the stock adjustment carried forward. Previous USDA estimates for India were based on the assumption that the end of November was when stocks were at their lowest point, and reflected the ending stocks for the USDA August-July marketing years that provided adequate stocks to meet demand through November. The revisions are based on the conclusion that market yard arrivals data underreported arrivals in the early portion of the harvest season.

This conclusion was based on the observed market activity in November for several years. With more arrivals in October, less old-crop cotton needed to be carried over to meet stock requirements in the fall. Minor adjustments were made to production (decreases of 1-2 percent in 6 years) and consumption (increases of less than 1 percent in 4 years); additionally, the losses in 2012/13 and 2013/14 were adjusted to reflect the need for less ending stocks. The cumulative effect of these changes results in a nearly 25-percent reduction of ending stocks for the 2018/19 season (see table below). Even with these changes, the USDA ending stock levels, adjusted to the local marketing year, remain higher than many other published estimates, specifically the Cotton Advisory Board (CAB) of India. With the larger October arrivals factored in, CAB stock levels appear too low in light of reported market activity in the October-November period.



Strong U.S Market Also Boost Domestic Sentiment
The domestic fundamentals were much positive for cotton, but the bounce back in U.S. cotton has provided an added advantage. ICE cotton futures last week (Oct 8-12) gained nearly 3% after five straight weeks of fall due to report of significant crop damage in Georgia followed by better U.S. weekly export sales report and weak dollar index.