The white bulls aggressive stomp

Import and export of agricultural commodities have always been a case of ill-thought policies in Pakistan. These days, cotton comes up as a stark instance of this.
A report published in this newspaper yesterday mentioned a deal struck at Rs13,000 per maund, while prices in the market flirted at levels above Rs11,500 per maund.
The culprit behind the soaring prices is the shortage of the commodity in the domestic market. While the estimated crop output is 11.7 million bales for FY11, out of which 0.5 million bales have been exported, the consumption levels are seen hovering around 14.5 million bales for FY11.
"Another woe of the industry is that the weight of each bale, which used to be around 170kg previously, is somewhere around 155kg this time, rendering the situation more dicey," said Naseem Usman, Chairman, Cotton Brokers Association.
"A shortage anywhere between 1.5-2 million bales is imminent," Usman added.
The international scenario also paints a bullish picture on grounds of tight US supplies and increased demand, particularly from the voracious China.
Even though China is attempting to pull the reins on its spiraling growth, and raised interest rates by 25 basis points on Tuesday, the dynamics of the cotton market remain buoyant.
"China will not turn off the spigot in powering economic growth, so the potential threat to cotton consumption from an economic slowdown may not materialise at all," according to analysts, quoted by Reuters.
This only makes the scenario way more complicated in the domestic market, since its not financially feasible to supplement the shortfall in supply through imports. "Cotton is not less than $2/lb anywhere and its not viable to purchase it at those rates," Usman said.
Further, the dishonouring of contracts by some Indian exporters have added to difficulties, with market players alleging that less than half of the contracted amount has been supplied to Pakistan.
Overall, what this means is that the local cotton market is standing at a precarious junction where the reduced supply of the commodity will probably keep the prices afloat.
Perhaps its about time to explore alternatives, such as PSF, in more depth, and also to try reconsidering the cotton export policy to arrive at a conclusion acceptable to both cotton exporters as well as valued added players.