Taming of the white bull

It soared, it alarmed everyone and it set up its own history. Its the very (in)famous cotton. But, of late, the white gold has fallen from the peak of its glory, price corrections having been witnessed in both local and global markets.
In the early days of the previous month, on 10th November to be precise, the price of cotton thundered up to a peak of $1.54 per lb, an increase of over 100 percent relative to July prices. Bullish demand from China, declining US inventories, and voracious buying by fund managers were the main factors attributed to the price hike.
However, a turnaround took place when China took steps to cool its economy, and international cotton prices dropped 6 cents to $1.23 per lb, the biggest weekly loss in 20 months. There are possibilities that China may increase interest rates further to slow down its inflation, and will also prop up transactional prices of dealing in commodities and futures to control speculation.
At the same time, Indias cotton outlook seems improved for the year, as the worlds second largest cotton producer and exporter is seeing production of 35.7 million bales for the year, as opposed to 29.5 million bales last year and the Cotton Association of Indias September estimates of 34.5 million bales.
Consequently, the fundamentals for the short-term indicate that prices may not see the rally witnessed a few weeks back. Keith Brown, president of commodity firm Keith Brown in Georgia, said, "In the near-term, we may be choppy. In the longer-term, we may move higher."
Rising cotton demand, not fully matched by parallel increases in production, adds weight to Browns insights.
As for the steps taken by China, even companies dealing in futures in China believe that "these measures won change the fact that... global demand is rising" and "its impossible to drive global markets by policies from a single player".
Players in the local cotton market are also skeptical of international prices, with some key players saying that the international markets are very unpredictable and driven more by speculative buying rather than the fundamentals of demand and supply.
"While a new higher level of prices may have been achieved, I don think international prices should rise as much in future as they did in the beginning of this month. Its not as if the world has run out of cotton!" a representative of the local cotton market told BR Research.
Locally, the prices are deemed to stay stable. After reaching a high of 10,500 per maund around the same time as global prices of the commodity surged up, the prices on the local cotton market eased to around 8,500 per maund. Industry sources claim that better output in India opens up the possibility of importing cotton from the neighbour to cover any shortfalls in local demand and supply.
However news that Indias exporters may ship only 50 percent of the 5.5 million bales allowed to be exported before December 15, owing to rains in Gujarat and Maharashtra, should keep both local and international followers of the cotton markets on their toes.
It is a good opportunity for the downstream sector, to strike while the iron (read prices) is not-so-hot. Lower procurement prices will give a boost to the value-added sector amidst their regular pleas against the RGST.
While local raw cotton exporters may not be smiling ear-to-ear right now, the downstream textile makers may find some respite.