Slow arrivals of cotton raise fear of price increase

Tags: News

Despite record output projection, first three months show shortfall

Slow arrival of new crop in the first three months of the current cotton year has raised fears that cotton price may go the onion way in the run-up to the general elections, giving a new headache to the ruling party.

Onion prices had shot up as much as 360 per cent within a couple of months just ahead of the recent assembly elections, and high inflation was cited as one of the reasons for Congress’ debacle in four out of the five states that went to polls.

Cotton production was projected to be a record 37.5 million bales in the current cotton year that began in October. But only 10 million bales have arrived in the first three months against an average of 12.5 million bales, official figures show.

Analysts say arrivals have been 20-25 per cent less this season and apprehend that there could be a spurt in price if this trend continues.

Usually, arrivals peak between October and February. That being the case, 27.5 million bales (170 kg = one bale) will have to arrive in the market over the next 75 days. This appears a bit difficult, considering that crops have not been as good as expected in Gujarat and Andhra Pradesh, the two major producing states, said a government official, who wished to remain anonymous.

Cotton price has been ruling between Rs 38,000 and Rs 42,000 per candy over the past few months. Analysts expect the price to remain range-bound for at least a month or so and then rise sharply as demand rises.

Industry is buying huge quantities and building stocks.

Demand for cotton continues to rise, as textiles production as well as export of apparel and yarn is rising. The textiles industry requires about 27 million bales annually and the rest is exported, mostly to China. Exports range from 7 to 10 million bales.

CAI president Dhiren Sheth, however, projects cotton production to be 37.8 million bales and pegs consumption at 30 million bales.

D K Nair, secretary-general of the Confederation of Indian Textile Industry, says cotton consumption has been very good as the textile industry is doing extremely well.

Though unable to give any data at this point, he says there is no price fluctuation in cotton now. The demand for cotton will only grow due to high yarn and textiles output. He does not anticipate any shortage as the crop is expected to be good.

Asked about the shortfall in arrivals despite projections of a bumper crop, Nair says there are reports of some damage to the crop in AP. Also, he suspects some hoarding by farmers to regulate the release of the crop to get a better price. Still, he does not see any difficulty in cotton availability. The ‘positive’ output of the textile industry and domestic consumption is not going to be an issue, he adds.

The area under cotton has grown from 8.6 million hectares in 2000-01 to 11.6 million hectares now. Cotton production, too, has increased from 14 million bales to 33.4 million bales in 2011-12 and 35.3 million bales in 2013-14. The area under cultivation this year has remained at 11.6 million hectares, but production is projected to be 37.5 million bales. In 2011, the government had banned exports after the textile industry complained of non-availability of cotton. In 2011-12 and 2012-13, though arrivals had not shown any buoyancy, the output was subsequently reassessed upwards at 36.7 and 36.5 million bales, respectively.

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