Floods, monsoon fears make TCP panicky for selling, spinners for buying cotton

The area under cotton cultivation for 2005-06 season has been reported marginally - 2.1 percent - higher than 2004-05 season at 3.2 million hectares. Many prominent cotton producing countries, including China (29.0 million bales), USA (23.0 million bales), India (16.6 million bales), Pakistan (11.25 million bales of 480 lb each) and also the world (116.0 million bales) set ever high production records in 2004-05 mostly because of very cotton-friendly weather conditions.
Similarly, very high productivity (Average yield in kg per hectare) records were set: China 1,109 kg, USA 917 kg, India 404 kg, Pakistan 740 kg and the world 709 kg/hectare.
Pakistan's ever high production record was set in 1991-92 at 10.0 million bales of 480 lb =12.8 million local weight bales, but in the following two years--in 1992-93 and 1993-94--Pakistan produced less than 9.0 and 8.0 million local bales, respectively. The new season (2005-06) has taken start from heavy rains and floods caused by melting of snow on mountains and release of excessive water, around 400,000 cusecs, in Rivers Chenab and Sutlej by India.
Monsoon rains are likely to last up to the end of September. These monsoons are also causing damage to standing crops, property and lives in India, Bangladesh and China. All cotton related people have fears of damage to cotton crop in Pakistan.
May God prove these fears unfounded! However, the growers and the concerned government agencies should take all necessary measures to meet the possible eventualities. As such, it appears quite difficult to assess new crop cotton production figures before October.
Although Trading Corporation of Pakistan (TCP) is selling its cotton stocks hurriedly, physical delivery would take lot of time. TCP still has sold some 50 percent of its cotton stocks out of 1.6 million bales and now appears to have decided to sell the balance 800,000 bales to avoid possible damage by rain to cotton stocks during monsoon season.
Earlier, TCP wanted to hold up some 600,000 bales as buffer stock as also to avail the chance of even better price in coming months. The local spinners, under the impression of late and damaged crop, are showing great interest in buying cotton from TCP and have increased the price even beyond Rs 2,400 per maund for some good quality stocks.
In the last tender, TCP sold some 225,000 bales, of which two spinner groups bought as much as 30,000 bales each. Local merchants are not showing much interest in cotton buying from TCP. However, two foreign companies bought 5,000 bales each at 48.10 cents per lb fob Karachi.
The matter of restoration of cotton hedge market has slowed down due to reservations expressed by some main stakeholders like spinners and ginners. The argument that hedge trading system does not serve the purpose of spinners and ginners appears quite untenable as this system is working successfully in many countries, whether producing cotton surplus to their requirements or short to their requirements. Some other countries, too, are planning to adopt this system. In the absence of hedge market in Pakistan, all stakeholders including growers, ginners and spinners seek guidance from New York Cotton Hedge Market in respect of price trends. Cotton is an international commodity and its prices are governed mostly by international factors.
We cannot keep our cotton market aloof. Besides, there is greater transparency in hedge marketing than other localised markets. The system of on-line operation has made the Hedge Trading quite safe, fast and reliable. Foreign investment is always possible in this system. Sooner or later, hedge trading system would find place in our market to put our cotton trade on line with the world.
In New York market, rise in cotton prices was halted on price reaction and speculative selling. July contract went off the board on July 9 at 50.90 cents a pound, while October and December contracts finished at 53.80 and 55.47 cents, respectively, marginally down by 60 and 68 C/pts respectively during last week.
US by close of June has made total export sales of 15,191,800 bales, including 780,400 bales of Pima cotton, and shipments of 11,473,100 bales, inclusive of 765,500 bales of Pima cotton. China has been quite active in buying US cotton in the last many weeks.
Main buyers of US cotton were: China 4,008,900 bales, Turkey 2,240,000 bales, Mexico 1,918,600 bales, Indonesia 1,226,100 bales, Thailand 824,700 bales, Pakistan 720,900 bales (including 182,600 bales of US Pima cotton), Korea Rep 692,400 bales, Taiwan 625,900 bales, Canada 427,600 bales and Japan 422,600 bales.
US cotton consumption has been decreasing for the last many seasons because of high production cost in yarn manufacturing sector. USA attained the highest annual mill-use of raw cotton at 11,349,000 bales in 1997-98, and in 2004-05 it came down to 6.0 million bales. Its exports, which amounted to 7,500,000 bales in 1997-98, are likely to rise to around 16.0 million bales by the close of this season.
Under pressure from prominent cotton producing countries and WTO, USA may reduce payment of subsidies on cotton production, domestic use and exports. US local spinning and textile manufacturing associations are pressing US administration to take some protective measures for its industry against the increasing imports of textile goods from China.
USA and China are holding talks to reach an agreement for fixing the growth rate of Chinese textile imports into USA. European Union has already reached an agreement with China by which import growth rates of 10 Chinese textile products have been capped between 8.5 and 12.5 percent. However, it is hoped that US and China would come to an agreement as both cannot afford confrontation and counter-measures in textile trade in the interest of their economies.
Eyes of cotton trade people are on plants growth situation in the main cotton producing countries, and hopes for a better crop and fears of poor crop would play their role in cotton marketing/pricing.