Better crop hopes, large unsold stocks likely to depress cotton prices

23 Aug, 2005

Weather conditions prevailing in cotton areas of Punjab and Sindh are reported to be fairly conducive for another bumper cotton crop, at least ranking next to record high production. So far, monsoons and floods have not caused any significant damage to cotton crop in pucca areas but 1.2-1.5 million bales of river-bed areas seem to have been lost.
Fears of heavy and violent rains are fading out and hopes for a bumper cotton crop are getting strength. Prospects for better cotton crops in US, India and Pakistan appear quite promising while recent rains and floods in China have caused damage in some cotton areas including Anhui and Hebie.
However, China's very prominent cotton producing province Xingjian is expected to produce about 1.8 million tons of lint cotton from 1.16 million hectares. China reduced its cotton area by 10-11 percent as compared to last year. However, it is forecast that China would require some 1.4 million 480-lb bales to meet its deficiency in cotton supply.
Private estimates forecast a record high crop of 2.5 million local weight bales in 2005-06 season against last season's production of 2.25 million bales. India's domestic cotton consumption is around 1.9 million local weight bales.
Reportedly, India is holding about 4.0 million local weight bales as unsold from 2004-05 season while some 6.0 million bales would be surplus from new crop. Thus, India would have an export surplus of about 10.0 million 170-kg bales. US is expected to produce some 22.0 million 480-lb bales in 2005-06 season against its domestic consumption of 5.8 million bales. Thus, US would have some 16.0 million bales available for export.
CIS would be producing 7.3 million 480-lb bales and consuming only 10-12 percent of it. Turkey would be producing some 4.0 million 480-lb bales and consuming some 6.0 million bales. Turkey is deficient in cotton by 2.0 million 480-lb bales.
Crop development position the world over is said to be more than satisfactory and hopes are there for producing at least second highest crop this season. Besides, the beginning stocks in 2005-06 season have swelled to over 49.0 million 480-lb bales which is about 45 percent of world cotton consumption of current season. This heavy carryover may cast easy impact on world cotton prices in the coming months.
Yarn prices are not supporting cotton prices. Unsold stocks of cotton yarn are accumulating in all prominent countries, like China, India and Pakistan. In China alone, the accumulation of cotton yarn stocks is 25 percent more than last season at the end of June. The fast increasing prices of petroleum and its products are also increasing production cost of both industrial and agriculture commodities. In international market, crude oil prices have touched the level of $67 per barrel and are forecast to cross the level of $75 by the end of December, while in 2006 it may cross the mark of $100 per barrel. Of course, this phenomenon may favours more cotton use but high increase in production cost would reduce world cotton consumption.
Non-oil countries would have to find alternative energy sources to run their industries competitively. Countries like Bangladesh, which are prominent in textile exports but have neither raw material for textile products nor for producing power, would feel burnt of the situation severely. Reportedly, a new fibre--Bamboo Fibre--has been developed from bamboo sticks and China is doing well in it. If 'bamboo fibre' is developed for producing textile goods then Bangladesh would find an edge in producing textiles made from bamboo fibre over other countries not producing bamboo.
Harvesting of cotton in Lower Sindh has slowed down due to engagement of general public, including cotton workers, in recent local bodies elections. However, cotton arrivals pace would accelerate when second phase of these elections is over on August 25.
Seed-cotton prices in Sindh have gone down below the level of Rs 1000 per 40 kg and lint is selling at Rs 2,225 to Rs 2,275 per maund (37.324 kg). Ex-gin prices in Punjab lint are commanding premium of Rs 100 over Sindh lint prices. Local mills are reported to be in a comfortable position in respect of raw cotton stocks held by them and are not showing traditional interest in buying new crop cotton. Also, the mills are booking foreign cotton at relatively cheaper rates. Rush of arrivals would start in the month of September and trade circles expect further decline in lint prices to the level of Rs 2,100 to Rs 2,200 per maund and export inquiries are likely to pour in at this level.
In view of good prospects of cotton crop, weak yarn prices and larger beginning stocks, cotton prices are expected to remain weak on the face of comparatively lower buying interest. The Trading Corporation of Pakistan has disposed of some 1.1 million bales of cotton in both local and export sales out of its stock of 1.61 million bales.
As per trade circles reports, TCP would float tenders for sale of cotton only for exports but the tender has been delayed for some reasons. Some paper companies to whom the TCP sold cotton in open tender are understood to have neither furnished necessary bank guarantee for performance of contract nor opened L/C despite TCP's reminders The TCP should have asked all foreign bidders of the tender to at least provide complete company profile so as to discourage participation of fake companies. As such, proper inquiries should be conducted in such export sales as to ascertain genuineness of the buyers.
Reportedly, the International Cotton Association Limited, Liverpool (Previously known as Liverpool Cotton Association) has put Trading Corporation of Pakistan on its defaulters' list on August 16. Previously, Cotton Export Corporation of Pakistan was put on defaulter list in 1996. Since TCP has taken over the CEC, so TCP has also been declared as defaulter. As such, the members of International Cotton Association Limited are barred from entering into any contract with defaulter companies. The reaction of foreign cotton companies would only be known when TCP would float its next export tender. The matter is serious as reputation of Government Agencies is involved. The Government should look into this matter and solve it on merit.
Weakness of cotton prices in New York Futures has extended to close of last week. October and December contracts closed at 46.87 cents and 48.56 cents, respectively. The volume of business has also been reported small. USA closed its exports for the season 2004-05 at 12,824,600 bales and has opened its export sale account in new crop. Some 2,380,800 bales of unshipped cotton from 2004-05 season and 1,782,200 bales advance sale from 2005-06 crop have been taken as exports sales of 2005-06 season which amount to 4,163,,000 bales as on the opening day of 2005-06 season. As up to August 11, China has bought 1,352,000 bales, Mexico 900,000 bales, Turkey 336,500 bales, Indonesia 310,000 bales, Korean Rep 273,600 bales, Thailand 131,900 bales and Canada 98,500 bales.
As per US reports, deficit in US budget is likely to stand around $427 billion whereas when Bush was first elected in 2000 as President of USA, there was surplus of $236 billion in the budget. Thus in five years' time, Bush administration has lost $663 billion.
There has been significant increase in the export of apparels to US from prominent Asian countries. Here are some of the figures shown in table.
This report relates to apparel exports for the period January-June 2005 after WTO. Of the total US exports of apparels, China shared 26.49 percent while Bangladesh shared 4 percent.



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(US $ / Unit Price)
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Countries Total Cotton Woollen MMF Volume
apparel apparels apparels apparels
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China 2.67 2.65 11.20 2.27 +125 percent
India 3.72 3.78 9.12 3.01 +32 percent
Pakistan 2.08 2.24 5.18 1.09 +12 percent
Bangladesh 2.06 2.30 7.98 1.32 +21 percent
Sri Lanka 3.53 3.72 10.99 3.15 -15 percent
Vietnam 3.33 3.90 9.89 2.59 4 percent
Indonesia 3.35 3.77 4.52 2.89 14 percent
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