Trick or treat in cotton market

Uncertainty and speculation have ridden the local cotton market to a considerable extent, particularly in the aftermath of floods.
Price fluctuations in the market are a strong testimony to this fact, rising initially to as high as Rs7000 per maund and then diving into a downhill journey.
At the beginning of August, prices had witnessed a sharp hike in the wake of fears of crop damage due to persistent rains. With no clear indication of the extent of destruction during the initial days, and prediction of more rains back then, millers were possessed by panic buying which pushed prices upwards.
Recent news regarding a bumper crop in India of up to 33 million bales, however, and easing up of export procedures for cotton exports from India are believed to bring down prices.
The average cost of importing cotton bales from India will roughly be Rs6000 per maund, as cited on the Yarns and Fibres Exchange, a decent bet for Pakistan given the high prices locally.
Compounding this are expectations of improved weather conditions in the cotton belt area and anticipations that flood water will start receding shortly. Consequently, prices saw a downturn to Rs6500 per maund on Friday from a high of Rs7000 per maund on 13 August since the floods.
On the flipside, however, most recent media news cite losses of roughly 3 million bales, which will bring down the local production to below 12 million bales, against an estimated output of 14 million bales before the floods.
With local consumption hovering between 15-16 million bales, the reduction in local supplies will be a challenge for the local market in maintaining the fall in prices.
Additionally, though imports from India seem to be a viable option, rising international prices because of increased demand from China and supply shrinkages are likely to keep a check on how feasible these imports will be in the long-term.
Though the sliding price revisions will possibly continue in the days to come, until the downhill journey will last, and the extent to which prices fall is still a tad wooly.
Once the extent of damage to the crop and local supply-demand discrepancies and cost of importing cotton become more apparent, a tricky scenario might open up for the local market.