Having witnessed a roller-coaster ride in 2017, cotton prices are expected to be range-bound with an upward bias from the current levels in 2018, experts hinted. In the last one month, raw cotton or kapas prices moved up sharply by Rs. 1,000 a quintal from the lows of Rs. 4,300-4,500 in Gujarat markets. The upside is mainly attributed to the political uncertainty and lower arrivals at the mandis inspite of robust crop estimates.
On the spot markets in Rajkot, each bale (of 170 kg) of 29-mm cotton was quoted at Rs. 19,459 as on December 22 from Rs. 18,098 quoted a month ago. In 2017, cotton prices saw sharp volatility due to climatic extremities and pest attack in key growing regions of Karnataka, Maharashtra and Gujarat. According to trade sources, the recent upside in cotton prices is mainly due to the stocks held by the farmers in anticipation of better prices.
Farmers retain the fibre
“The arrivals have not yet hit the peak levels. Overall, 20 lakh bales have arrived in Gujarat, while the all-India arrivals are about 100 lakh bales. Also, there are export commitments for about 15 lakh bales, while nearly 9 lakh bales have already been shipped. This has created a bullish mood amid slow arrivals,” said Arun Dalal, a cotton trader. Further, a crucial election in the largest cotton grower Gujarat also prompted farmers to postpone selling their stock in anticipation of some government assistance to lift the market prices.
“The current upside in cotton prices is due to lower arrivals. The farmers have set their eyes on the ICE cotton rates, which are higher. As against the daily arrivals of 2.25 lakh bales across the country, currently only 1.50 lakh bales are arriving. This indicates that farmers are holding back the stock expecting better prices,” said J Thulasidharan, President, Indian Cotton Federation.
The domestic cotton prices are closely connected with the global sentiment, especially with the price movement on New York’s Inter-Continental Exchange (ICE). An estimate by the International Cotton Advisory Committee (ICAC) projected 2017-18 global cotton production at 25.57 million tonnes against 23.05 million tonnes estimated for 2016-17. The global cotton consumption is expected to be at 25.22 million tonnes — lower than production.
However, the stock-to-use ratio of the global mills remains upwards at 76 per cent. “Higher stock-to-use ratio joined by good cotton production will keep the rally in check and limit the downward pressure as well. Hence, even if the Indian cotton scenario appears to favour a bull-run, there is not likely to be a big bull run in 2018. Nor will there be a big correction in the coming year,” added Thulasidharan.
Meanwhile, domestic scenario continues to point at the future volatility in cotton prices due to speculators and hedge-funds looking at the fibre commodity as an investment tool to hedge their financial risks. “As long as there will be volatility in New York Cotton futures (ICE Cotton), there will be reflection on the Indian cotton prices.
The crop and stock scenario shows increased availability but there is also likely increased mill consumption and higher yarn demand. Hence, we see the 2018 year to remain in a balance with some volatility due to speculators,” said Nayan Mirani, a Mumbai-based cotton expert. ICE Cotton was quoted at 77.96 cents, and is likely to hit 80 cents amid speculative trades.
According to the recently released data by the Cotton Advisory Board, India’s cotton output is estimated to be around 377 lakh bales with lower yield of 523.83 kg/ha for 2017-18 against 540.80 in 2016-17. Cotton acreage, however, has increased from 108.45 lakh hectares in 2016-17 to 122.35 lakh hectares in 2017-18. This is likely to be reflected in the increased production of the fibre crop from 345 lakh bales last year.