MUMBAI (Commoditiescontrol) - U.S Department of Agriculture (USDA) in its latest US export sales report has retained India 2016-17 cotton output at 345.8 lakh bales, up from 338 lakh bales in 2015-16, due to second highest yield on record at around 560kg/hectare. However, it has lowered the consumption for the year, citing attributing to the monetization policy of the Indian government.
Arrivals Limited By Farmers' Inability To Pay Workers Or Sell Crop For Cash
USDA report said that the demonetization has led to the disruption and delay in cotton arrivals as cotton farmers are unable to pay contract laborers to harvest the standing crop. On November 8, 2016, the Government of India announced the cancellation of existing Rs 500 and Rs 1,000 valued note as legal tender as well as an exchange plan for new bills. The announcement was accompanied by restrictions on cash withdrawal for all citizens.
In cases where farmers harvest a crop, they are reluctant to sell as they cannot receive adequate cash for the crop though they can, if they have a bank account, receive payment by check or online bank transfer.
Trade sources indicate daily cotton arrivals has been slower by 25 percent from last year and attribute the slowdown to cash availability. Sources expect arrivals to be further delayed in the coming weeks, which could lead to their bunching up later as condition normalizes and assert downward pressure on prices since mills will resume operation slowly.
Consumption Reduced As Cash Limitation Limits Buying
Post forecasts cotton consumption for MY 2016/17 is 23.5 million 480 lb. bales (30 million 170 kg bales/5.1 MMT). Posts estimate is 500,000 (480 lb) bales lower than the USDA forecast. Average monthly mill consumption in MY 2016/17 so far is around 1.86 million 480 lb. bales as compared to 1.97 million (480 lb) bales during same period last year.
Trade sources indicate a short-term reduction in overall cotton consumption in MY 2016/17 based on the recent demonetization announcement. The expected drop in demand across the cotton supply chain has prompted spinning and textile mills to voluntarily reduce their shifts and lower production output.
Traditionally, the pace of cotton arrivals in the market is strong in November and December when mills are actively buying in large quantities. In the latest scenario, purchases are limited to covering immediate requirements.
Mill stocks of cotton and cotton yarn in September 2016 as reported by the Textile Commissioner Office were lower than the three-year average. At the consumer end, there is a visible decline in the buying of premium products in the apparels sector. The unorganized and small scale textile sector, which is primarily based on cash transactions, is witnessing a decline in demand.
Trade
FAS Mumbai’s MY 2016/17 export forecast is 4.2 million 480 lb. bales (5.3 million 170 kg bales/914,000 MT). Since the GOI announcement, the Indian rupee has become weaker against the dollar by 3 percent which provided a boost for exports. November exports were the highest period of the marketing year with a rise in shipments to China of the new 2016 Indian crop. Shipment data also revealed that there was some Australian cotton sent from southern India to China during the month of November. Bangladesh and Vietnam were the other major export markets of Indian cotton.
Trade sources indicate that cotton and cotton yarn shipments are expected to remain slow for the remaining part of MY 2016/17 as global demand remains weak.
MY 2016/17 imports are estimated at 1.8 million 480 lb. bales (2.30 million 170 kg bales/ 392,000 MT).
While there was a surge in imports at the start of the marketing year, import shipments have reduced by 60 percent from the previous month as the new domestic crop started showing up from late-October onwards. The United States, Australia, and Egypt were the three largest supplying countries in November.
Marketing year 2014/15 and MY 2015/16 levels are based on previous releases of official trade data.
(By Commoditiescontrol Bureau; +91-22-40015533)