Cotton prices crash as farmers release held back stocks

Cotton prices have fallen about nine percent in the past two weeks as farmers begin to bring produce they have withheld over the past few months into the yards of the Agricultural Produce Marketing Committee (APMC).

Farmers in various states have changed their minds and are looking to sell their stock capas (seed cotton). Access capas “May is at a new high and is expected to continue until the end of June,” said Anand Popat, a cotton, yarn and waste trader from Rajkot.

The amount of cotton arriving per day has increased to 1 bale (170 kg each) over the past few days. The demand for spinning is negligible and its exports have been affected by stagnation. “The demand for garments is also weak,” said Ramanoj Das Pop, a cotton exporter to spinners, multinationals and exporters from Raichur, Karnataka.

Panic strikes?

According to data from Agmarknet, a unit of the Ministry of Agriculture, the arrival of cotton has hit a 9-year high of 1,82,572.67 tonnes (10.73 lakh bales) so far this month. In 2014, when India produced a record crop of 398 bales, the number of arrivals in the same period was 2,36,800.48 tons (13.93 lakh bales).

“Daily arrivals capas It ranged between 90,000 and 110,000 bales per day last week, with a total of 7 lakh bales arriving,” Popat said.

“Panic has hit the market. There is no demand for yarn or cloth. Nobody is buying cotton either. It seems that production is in excess,” said Sachin Janwar, a yarn processor.

“As demand continues to slow down across the value chain, cotton prices are declining in line with the same trend,” said Prabhu Damodharan, Coordinator of the Indian Entrepreneurs Federation (ITF).

Hope for more

Currently, processed cotton (lint) is priced at £56,900 a candy (356kg) compared to $62,200 two weeks ago. On the multi-commodity exchange, the June cotton contract is currently priced at $58,120 candy.

capas Prices in Rajkot APMC rule at $7,175 a quintal, down from $7,950 two weeks ago. On the Intercontinental Exchange (ICE), New York, July contracts for cotton are trading at 84.27 US cents per pound ($56,625 candy).

Cotton growers have shut down their production and stockpiled it in backyards and on stands this year in hopes of boosting prices. They were not willing to sell even when prices were ruled at ₹8,000 quintals against the minimum support price of ₹6,080 since they had commanded prices above ₹10,000 last season.

Farmers in Karnataka and Maharashtra have reduced their production for the first time except for Gujarat farmers who usually stop their production for the poor arrival season which starts in April.

“While cotton prices have fallen to INR 57,000 levels in India, they are ruling at INR 67,000 in China,” said Janwar.

It is difficult to judge crops

There is some parity in export prices. “You’ll start to recover now,” said Popat. So far, 11.50 bales of cotton have been exported and shipments are expected to drop to a 19-year low of 23 lakh this season through September.

Since last week, the ICE market has been strong even with Indian cotton prices falling on a daily basis. “The downward trend prevails in the MCX as well,” said Das Pop.

“We have to try to increase exports to 30-35 lakh bales if the situation has to be changed,” said Janwar.

“Across the value chain, textile firms are operating at lower capacity utilization levels. Subsequently, cotton prices will align with real demand factors such as apparel exports.”

“Looking at the direction of the current arrivals, it is difficult to judge the yield based on the influx into the APMC yard and capas Das Pop said farmers in Maharashtra and Gujarat are “preventing them from coming back”.

He said that this would make it difficult to predict the size of the potential arrival of cotton, as the merchants’ gin and merchants maintain huge stocks of between 30 and 35 thousand bales.

Building inventories of multinational companies

The Cotton Production and Consumption Committee, a body comprising all stakeholders, has estimated the crop for the current season (October 2022-September 2023) at 327.23 bales but a section of commercial pegs pegs it higher at more than 340 lakh bales. However, the Cotton Association of India, a body of traders, pegged it at less than 300 bales in its latest estimate this month.

Many were carrying stocks of cotton and yarn that were more than a year old, Jinwar said. “I still carry a fair amount of yarn and a dozen bales of cotton from last year,” he said.

Currently, multinational trading companies are buying cotton, said Das Pop and Bubat. “The spinning mills have a 45-day supply of cotton. The cash-rich mills have a 70-90-day supply,” Das Pop said.

“The situation seems to be favorable for these trading companies that sold in the futures market and are now covering stocks. Lower prices are also helping them,” said Popat.

Seeding may rise

“Over the next three months, we could see some amounts of cotton being imported from Australia, Brazil and the United States,” said Das Pop.

“The market developments this week will be crucial, and after that the focus will be on the US,” Januar said.

“We are seeing some pockets of recovery in some home textile products due to depleted stocks with retailers. At the same time, we expect a steady influx of demand for apparel which is a large part of our export basket from October.”

Das Pop said that despite lower prices, cottonseed will increase this year, although mills are likely to curb production in the coming months if the current trend continues.