The month of March witnessed very volatile movements in cotton futures on back of

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an unexpected ban on cotton exports slapped by the trade ministry, which later rolled back the same amid opposition from farming groups and industry participants.

Last month, the government said no fresh registration certificates for exports would be issued until further notice. India’s cotton season runs from October to September. The US department of agriculture (USDA), in its latest report, said: “No new additional export registrations are being approved and this report assumes that existing policy parameters will be in place through September 30, 2012, the end of the Indian cotton marketing year.”

India’s national fibre policy affirms that cotton exports should be limited to exportable surplus.

At present, the government is reviewing an additional three million bales of cotton that were registered for export at the time the ban was announced. Kapas futures on NCDEX, declined sharply from Rs 849 per 20 kg to around Rs 791 per 20 kg after the ban. However, prices recovered thereafter because the ministry allowed the export of shipments that were already registered. In addition, with record-high exports of around 11.5 million bales, the end stocks will fall drastically and that would restrict sharp fall in prices.

According to the Cotton Corporation of India (CCI), out of the total 345 lakh bales of cotton output estimated for 2011-12 season, 260 lakh bales have arrived as on April 1, 2012, much lower compared with 284.93 lakh bales in the previous year. This was mainly due to the delay in arrivals since the beginning of the year coupled with holding back of stocks on expectations of higher returns. Taking into consideration higher carryover stocks from last year and record-high output for the 2011-12 season (October-September), coupled with domestic consumption at 260 lakh bales, the Cotton Advisory Board initially had estimated higher ending stocks at 55.30 lakh bales. However, with the present pace of exports of more than 115 lakh bales and lower arrivals, closing stocks at the end of the season are estimated to be around 25 lakh bales (1 bale = 170 kg). India has decided to build cotton reserves of 2.5 million bales of 170 kg each to meet the needs of the domestic textile industry, a government statement said on Wednesday.

CCI has been directed to intervene in the market to ensure price stability, the statement said.

ICE cotton futures have been consolidating in the range of 87 cents and 94 cents per pound in the past month. Global cotton prices rose sharply from 87.4 cents per pound to 92.7 cents per pound after the sudden jerk of India’s cotton export ban. India is the second-largest cotton exporting country after the US. However, thereafter, prices again declined towards 87 cents levels on the back of hefty stocks globally and then bounced back to 94 cents per pound levels on expectations of lower USDA’s planting figures data for the 2012-13 season. Year 2011-12 is a surplus year for cotton with excess production on one hand at 26.7 million tonnes and lower consumption on other hand at 23.7 million tonnes on the back of slow economic growth.

However, the market will now take cues from the 2012-12 planting intention figures. In its planting report released on March 30, USDA forecast US 2012 cotton sowing at 13.155 million acres, 11 per cent below last year, but, higher than a Thomson Reuters survey’s range of 12.74 million to 12.76 million acres. The USDA’s annual planted acreage report is scheduled to released on June 30, which will provide a clearer picture for the upcoming 2012-13 marketing year (August-July).

Vedika Narvekar, senior analyst of agriculture at Angel Commodities, said, “At present, prices are consolidating in a narrow range of Rs 800 and Rs 870 per quintal. Trade participants are adopting a wait-and-watch policy till further clarification on fresh exports that are at present suspended. Taking into consideration the closing stocks at the end of the year, the government may not allow more exports, but it may consider other measures to control prices in the domestic markets from falling sharply. If the government does not allow more exports, sentiments might turn negative for the short term (two-three sessions). However, over the medium term, we expect cotton prices to remain in a positive territory as India has decided to build cotton reserves to meet the needs of the domestic textile industry and the government-run Cotton Corporation of India has been directed to intervene.”

In addition, lower ending stocks on account of robust exports may also keep prices firm in the medium term.