White gold in the lurch

Flagging fibre prices, with cotton trading close to 80 cents per pound, validates the markets growing pessimism over the cotton outlook for the rest of the year. At the current level, cotton prices have plunged to a 31-month low in the international market, marking a drop of around 63 percent from record high prices of $2.19 touched in March 2011. Local cotton bazaar also follows the downhill trend, with fibre gyrating around Rs.5,500 per maund, of late, down from record high of around Rs.13,500 per maund touched during the March last year. Behind the declining prices is a combination of growing stock level, slowing world economy and strengthening of US dollar. Prospects for cotton demand have deteriorated on account of economic upheaval across European countries and slow down in economic engines in China. The global cotton output and demand gap is expected to narrow in 2012/13 compared to the last year, as production is expected to fall by 7 percent to around 25.10 million tons, when the global fiber consumption in expected to increase by 3 percent to 23.9 million tons in 2012/13. But, expansion in the worlds cotton reserves, given that the cotton production will exceed consumption for three years in a row in 2012/13, will continue to keep growers on the receiving end. The global stock level is expected to improve to 14.46 million tons in 2012/13, marking a growth of 9 percent compared to the last year. "By the end of July 2013, global cotton stocks would represent 61 percent of global consumption, the highest stocks-to use ratio reached since 1998/99", according to International Cotton Advisory Committees ( ICAC) press release. As cotton managed to maintain its title as one of the worst performing commodity since the past one year, falling prices will drastically reduce the farmers interest in cotton plantation down the line. However, in local market where framers don have the luxury of switching to other commodities as in the case of developed countries, the government is eyeing a target production of 16 million bales in the next fiscal year as opposed to around 13.6 million bales of output in FY12.