Growers raise cotton prices due to Texas drought, high cost of inputs

Prices were on the bullish side on the cotton market on Friday as growers were demanding higher prices due to high cost of inputs and cut in cotton production in Texas owing to drought, dealers said. The Karachi Cotton Association (KCA) retained the official spot rate's overnight level at Rs 8,500, they said.
In Sindh prices of new phutti were quoted at Rs 3500-3550 and old phutti crop in Sindh and Punjab, the rates were of low type at Rs 2500 and that of superior type at Rs 3000, they said. In ready business, over 5000 bales of cotton changed hands between Rs 8475-9200, they added.
Some analysts said that prices maintained an upward trend as mills showed interest in new purchasing of fine quality. They observed that the mills were not in panic but they are trying to buy as much as they can in anticipation of rise in the rates in the near future. They feel that if rains start in the cotton belt, it could delay picking operations in Sindh cotton belt. So, a few deals reported at Rs 9200 and rates may go up in days to come, they added.
Today a ginning factory in Haroonabad has started operation, they said. Other experts were of the view that the local growers raised prices after less production of cotton in Texas due to drought and high cost of inputs in the absence of basic infrastructure. According to reports the drought plaguing Texas, the biggest cotton growing state in the US, pushed up cotton futures this spring. Futures are hovering near $1.30 a lb, four times what they were in 2010 when cotton was the best performing commodity. The Texas drought is one of the worst in a century and cotton farmers are on the brink of collecting insurance payments by writing off their crops in a state that accounts for nearly half of all US cotton production.
Besides, to face the global challenges, a joint study by the World Bank and the State Bank of Pakistan (PBP) has asked the textile industry to improve the productivity, the industry must invest in the information technology (IT) and skill to minimise the rising cost of input. The study also suggested that how an industry which is earning major share of foreign exchange, could be able to achieve desired target without these factors.
In the meantime, some other analysts said that this year, the country is expected to get better cotton production due to favourable weather. Previous year floods played havoc in the country, causing damage to cotton, fruits and vegetable crops. This factor caused unrealistic increase in the prices of these items, they said.
The growers are satisfied and hoping for better production this year, if weather remains favourable in the country, they said. On Thursday the US cotton futures ended higher on investor buying prompted by a government crop report that cut US 2011/12 cotton production resulting from the worst drought in a century to hit the major growing area of Texas, analysts said.
The US Agriculture Department's monthly supply report reduced its outlook for 2011/12 US cotton output to 17 million (480-lb) bales from the 18 million forecast last month. The drought has hit hard cotton output in the world's top exporter and No 3 producer of the fiber. The key December cotton contract on ICE Futures US jumped 2.84 cents to close at $1.3299 per lb, dealing from $1.3025 to $1.3455.
The spot July contract jumped the six cent daily limit to conclude at $1.5105 per lb. Total volume traded on Thursday reached around 23,500 lots at 2:48 pm EDT (1848 GMT), some 40 percent above the 30-day norm, Thomson Reuters preliminary data showed.
The following deals were reported: 1000 bales of cotton from Rahim Yar Khan sold at Rs 8800, 1000 bales of cotton from Khan Pur at Rs 8800, 527 bales of cotton from Vehari at Rs 8800, 200 bales of cotton from Hasil Pur at Rs 8500, 400 bales from Burewala at Rs 9200, 200 bales from Bahawal Pur at Rs 8475, 215 bales from Bahawal Pur at Rs 8800, 363 bales from Faqeer Wali at Rs 8500, 537 bales from Shah Jamal at Rs 8500, 200 bales from Faqeer Wali at Rs 8500 and 400 bales (mill to mill) at Rs 8700.

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The KCA Official Spot Rate for Local Dealings in Pak Rupees

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FOR BASE GRADE 3 STAPLE LENGTH 1-1/32"

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                                    MICRONAIRE VALUE BETWEEN 3.8 TO 4.9 NCL

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Rate              Ex-Gin   Upcountry   Spot Rate    Spot Rate    Difference

                    For      Price     Ex-Karachi  Ex. KHI. As   Ex-Karachi

                                                  on 09.06.2011

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37.324 Kgs         8,500      120         8,620        8,620            NIL

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Equivalent

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40 Kgs             9,109      120         9,229        9,229            NIL

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