The size of current cotton crop is now close to victory stand of record high cotton production replacing the all time record of 14.275 million local weight bales in 2004-05. According to the fortnightly report of Pakistan Cotton Ginners/Association (PCGA), seed-cotton equivalent of 14.094 million bales has reached ginning factories by 15th February-12-against 11.381 million bales arrived same time last year-increase being 23.84%.
Of the total arrival of 14.094 million bales, domestic spinners have procured 12.105 million bales and cotton exporters are reported to have purchased 0.807 million bales against their export sales. Total unsold stock of cotton bales has been mentioned as 1.182 million bales. Punjab production is about 50 percent higher but Sindh production is about 30 percent lower than last year. Now, the chances of getting a bumper crop of around 15.0 million bales appear a reality. This record high production has been achieved despite loss of about 2.2 million bales in Sindh due to torrential rains and devastating floods in lower Sindh in last August-September months otherwise the size of cotton crop would have reached the level of 17.0-17.5 million bales making available some 3.5 to 4.0 million bales surplus for export.
Let us hope for even another record high crop in 2012-13 season but fears are there for heavy rains and floods next season as a result of heavy snowfall in our northern and mountain areas this winter. Due to heavy rains and floods, quality of cotton has been severely damaged which produced very poor cottonseed not suitable for sowing purpose. In lower Sindh, there appears acute shortage of cottonseed for sowing purpose and the requirement will be met by getting seed from other cotton areas especially from Punjab. As such, the lower Sindh growers would have to pay higher cost for seed.
In lower Sindh, where heavy rains and floods played havoc with crops especially cotton in last August-September months, the field situation is not good as tens of thousand hectares of land have not been cleared of stagnated flood water resulting decrease in cotton area next season. The low cotton prices especially in lower Sindh may prompt cotton growers to switch over cotton area to other better remunerative crops. In nutshell, cotton acreage is likely to be reduced by about 8-10 percent next year in Pakistan. This season our cotton consumption is estimated around 13.5 million bales. This season, we may export around 1.2 million bales and import some 1.0 million bales to meet our requirement of high grade and long staple cotton. The 2-year period of Pakistan's export access of 75 categories of items (65 textiles items) to EU-27 countries market free of duty and quota restrictions has started from 1st January 2012 and may go up to 31st. December 2013, The European Union may extend this facility for another one year. European Union countries are Pakistan's major partner in foreign trade especially of textile goods.
Pakistan's exports to EU countries are about 27.5 percent of its total exports (more than 60 percent textile goods) while our imports are 17.0 percent of our total imports (mostly chemicals and machinery) whereas total volume of foreign trade between Pakistan and EU countries is around euro 5.0 billions. Thus balance of payment is positive for Pakistan. If Pakistan takes full advantage of this European Union trade concessions, we may increase our volume to euro 6 billions a year which would greatly help our economy but the local constraints in exports such as acute shortage of power, increasing cost of utilities, high bank interest charges, poor law and order situation and unfriendly business atmosphere should be addressed to create atmosphere conducive to exports. If Pakistan makes sincere efforts, it can get the status of GSP-Plus from EU which may go a long way in increasing its exports to high level.
Globally, cotton area increased by 5 million acres which yielded 7.5 million 480-lb bales to 122.8 million bales in 2011-12season. Global consumption is still fighting the aftermath of over US $2 cotton rate last spring along with economic uncertainty which has reduced global mill use to 109.9 million bales making 12.9 million bales excess over mills-use. Resultantly, cotton prices are on lower level in almost all countries but in some countries signs of recovery are appearing as a result of increase in yarn prices. The excess of production over consumption by 13 million bales would be loaded to opening stock of next season. US has issued its first sowing intentions which mention 7.5 percent decline in US cotton area at 13.6 million acres yielding a crop of 18.3 million bales in 2012-13.
Financial crisis started in US and some other European countries in late 2008 and concerned Governments did take corrective measures but a large number of financial institutions and other commercial establishments declared bankruptcy. This did not end there but has badly affected the economies of other European countries. Larger debt beyond means are posing real threat to such economies, mentionable are Greece, Portugal, Spain and Italy. This debt crisis has slowed down economic performance of US and EU countries and other economies of China, India, Pakistan and Bangladesh have also been affected. Even industrialised-developed countries have great burden of debts on their economies. According to one report from 2008 to 2011, global GDP (Gross Domestic Product) increased by US $2.9 trillions (4.7 percent) and global debt increased by 25.70 trillions (14.0 percent). The debt-GDP %age of US is 350 percent, Japan 490 percent, euro currency countries 443 percent and United Kingdom 459 percent. Generally, when external debts reach 60 percent of GDP, annual growth declines by 2%, for higher levels, growth rates are roughly cut to half. IMF recently warned a Euro crisis may likely cut China's growth rate to half. China's Yuan which was at parity of over 8 Yuan per US Dollar in 2006 appreciated to around 6.0 level at the start of 2012 year. The shop-keeper cannot survive if his customers die. Similarly, US and EU countries being customers are in economic trouble which has also affected the shop-keepers like China, India, Pakistan, Indonesia, Malaysia and Bangladesh. The strongest among these is China which is likely to bail-out the US and EU economies. But then who could bail out the giant-the China? When during the Second World War, the greatest ship of Britain, the giant ship Invincible was drowning in the seas near Japan, it took many days and nobody could save it. The economies have over-expanded in the last decade the West being saturated in investment has transferred its funds to East especially China so heavily that investment has over-lapped development. Resultantly, China appears over-burdened with heavy foreign investments and funds are lying idle. The domestic capacity of China does not have much rppm to absorb exports locally. Actually, imbalance in global economy is evident which may take toll-later or sooner!
Cotton Market May operate in narrow margins till next couple of months Latest position of seed-cotton arrivals and estimated balance crop in the fields strongly support season's cotton production estimates around 14.5 million local weight bales, estimated to carry average weight around 155 Kgs per bale whereas standard average bale weight in Pakistan is Kgs. 170 per bale.
The quantum of 2011-12, cotton crop may be equal to 2.25 million metric tones or equal to 10.33 million 480-lbs bales. For better understanding to general public, cotton figures should be mentioned in tonnage and also in international standard weight of 480 lbs each bale. By 31st January 12, Pakistan's total seed-cotton arrival was reported by the Pakistan Cotton Ginners' Association at 13.615 million local weight bales against 11.104 million bales arrived in same period last year. Thus, this season crop is 22.61 percent more than last year. Punjab crop is 49.24 5 percent more than last year while Sindh crop is 30.37 percent lower than last year.
This analyst had mentioned 2011-12 season's crop estimate around 15.0 million local weight bales in his cotton report dated 16th August 11. By producing 14.5 million bales, high production record of 14.26 million bales of 2004-05 seasons will be broken. Before this, the record high cotton production was obtained at 12.8 million bales in 1991-92 seasons. If we had a favourable weather in 2011-12 season we would have produced a record high crop of 17.0 million bales about 20 percent surplus to our domestic requirements.
In view of unfriendly business and industries conditions, our domestic cotton consumption may be estimated between 13.5 and 14.0 million bales despite obtaining duty-free/quota free access for 70 items of textile categories to EU-27 countries in near future. This season's raw cotton exports and imports may be around one million bales each. Total unsold stock has now reduced to 1.381 million bales against 0.724 million bales same time last year.
The story of Governmental intervention in local cotton market through their agency Trading Corporation of Pakistan appears to have come to an end. This season, growers of lower Sindh did get perhaps the lowest rate of seed-cotton between Rs 1,200 and 1,400 per 40 Kgs ex-gin in December month as Sindh especially lower Sindh received peak seed-cotton in November and December months.
Main reason for comparatively lower cotton rates in Lowe Sindh was that cotton was damaged by heavy rains and floods in August and September months so they are real sufferers. Next season, the growers may reduce cotton area to get better price. In this winter season, there has been heavy snowfall on mountains in northern areas of Pakistan and in next summer season there are chances of floods as the snow would melt down and there may be heavy rains in monsoon season which may again create some problems for our cotton crop.
Domestic cotton prices in last week or so have been steady to firm up to Rs 6,000 per maund of 27.324 Kgs ex-gin. and New York cotton futures hovered within narrow range of US Cents 93-97. Keeping in mind the economic, political and financial developments in US, Europe, Middle-east, South Asia and East Asian Countries, cotton price trend in international market may not find any breakthrough and cotton futures may play between 90 and 100 cents range till next March-12. Exporters may be more active finding more surplus cotton in Pakistan.
Performance of Bangladesh cotton and textile industry has been below expectation as their spinning mills and cotton merchants had suffered heavy losses when NY A-Index cotton prices touched historically high at US Cents 229.67 in March 11 and crashed to US Cents 114.10 in August and then to 95.45 in December 11. This abnormal behaviour of cotton market caused abnormally high losses to cotton merchants and spinning mills in most of the cotton consuming countries.
The heavy loss to textile industry is evident from the fact that the parity of their currency BD Taka against US Dollar suffered heavily when their currency depreciated its value from BD Taka 70.59 in 2010 to BD Taka 85 in January-12. On the 7th February 12, it was BD Taka 83.96 a US Dollar. This situation has put serious dent on BD economy and serious shortage of US Dollars for arranging imports of commodities especially raw cotton.
The depreciation of BD Taka against US Dollar has inflated the import cost of commodities. Now, the BD textile industry is coming out of the financial crisis and is slowly and steadily coming on business track. Indian spinning mills were also affected by the abnormally high prices of raw cotton in 2011 but their mills absorbed the shock to a greater extent as they had their own cotton crop which was provided to spinning mills by their Government at comparatively cheaper rates.
The abnormality of international cotton price of 2011 affected more seriously the textile sector of those countries which mostly or entirely depended on imported cotton. China has reduced its textile production on slackened demand from US and Europe. However, China has been seen actively building its cotton reserves which had depleted considerably. Cotton prices are likely to operate in narrow margins till some remarkable even occurs.