Report Highlights:

Post’s MY 2014/15 production forecast is revised lower to 30.4 million 480 lb. bales. Deficient rains coupled with pest outbreaks indicate yield loss in the state of Gujarat. MSP procurement operations are underway across central and southern India. Exports continue to pick up as India cotton prices remain on par with the Cotlook index due to a weaker rupee while imports remain sluggish.

Production 

Arrivals start picking up as market continues under MSP ruling 

On December 28, marketing year (MY) 2014/15 all India cotton arrivals, as reported by the Cotton Corporation of India (CCI), reached 9.9 million 480 lb. bales (12.8 million 170 kg bales/2.17 MMT), 5 percent higher compared to the previous year. Per day arrivals are averaging around 234,000 480 lb. bales (300,000 170 kg bales / 51,000 MT). 

State-wise, there is a major lag in arrivals in the central cotton growing states of Gujarat and Maharashtra. Arrivals in Gujarat and Maharashtra are slower by 16 percent compared to the previous year. As reported previously, the slow pace of arrivals has been attributed to factors such as farmer holding, lower cotton quality, the late onset of harvest, weaker demand from the textile sector and farmer disappointment with prices following the record high prices of 2010/11. 

Production Down Slightly on Weaker Yields and Deficient Rains 

The FAS Mumbai MY 2014/15 production forecast has been revised lower to 30.4 million 480 lb. bales (38.9 million 170 kg bales / 6.6 MMT). Trade sources indicate yields have dropped in the state of Gujarat with reports of pest outbreaks in the coastal belt affecting the last crop picking and deficient rains in the Saurashtra region (which is responsible for about 70 percent of state production). MY 2013/14 and MY 2012/13 production estimates are unchanged. The cotton yield is forecast at 523 kg per hectare which is slightly lower than the five year average of 526 kg per hectare. 

Domestic Consumption Forecast Higher as Inventories Grow 

Post’s MY 2014/15 consumption forecast has been revised to 24 million 480 lb. bales (30.7 million 170 kg bales / 5.2 MMT). Average monthly consumption from August through October has remained strong at 1.95 million 480 lb. bales (2.5 million 170 kg bales / 425,000 MT). 

The Textile Commissioner’s office (TCO) revised the monthly cotton consumption for September upwards by 6 percent. Trade sources indicate that mills continue to procure but are limiting themselves to small quantity purchases. 

Policy 

Minimum Support Price (MSP) Operations 

The Cotton Corporation of India (CCI) continues procuring MY 2014/15 seed cotton under minimum support price (MSP) operations in central and southern cotton growing regions. As of December 31, CCI procured almost 2.9 million 480 lb. bales (4.0 million 170 kg bales) with almost 65 percent of the crop procured from the states of Telangana and Andhra Pradesh. In Maharashtra, 851 thousand 480 lb. bales (1.09 million 170 kg bales / 185,000 mt) have been procured by CCI and the state marketing federation. CCI has procured around 507 thousand 480 lb. bales (650,000 170 kg bales/110,500 mt) under MSP operations while the Maharashtra state marketing federation has procured on behalf of CCI another 344 thousand 480 lb. bales (441,000 170 kg bales/75000 mt). There has been limited procurement in other cotton growing regions as arrivals have been delayed and prices have discouraged farmers from delivering cotton to the market. Note that the 2.9 million 480 lb. bales excludes cotton procurement by the Maharashtra state marketing federation. 

Trade sources indicate that CCI may start releasing smaller quantities of stocks at some point in the last two weeks of January. 

Cotton and Cotton yarn export policy amended 

On December 8, 2014, India’s Ministry of Commerce and Industry issued notifications (Notification No. 102 (RE-2013)/2009-14) and (Notification No. 103 (RE-2013)/2009-14) modifying procedures and conditions related to cotton and cotton yarn exports. The new policy removed the requirement that exports be registered with the regional Directorate General of Foreign Trade (DGFT) authorities. Further, the new policy relaxes export procedures and signals that the Government of India believes that the current cotton supply can satisfy the often conflicting requirements of exporters and the textile industry. Cotton exports are expected to continue without any quantitative limits. 

Exports continue to pick up, while imports are weak 

Preliminary estimates indicate that the pace of exports accelerated to 780 thousand 480 lb. bales (1 million 170 kg bales / 170,000 mmt) during December, the highest level since April. The Indian currency has depreciated by 5 percent since August and made Indian cotton prices competitive globally. Post forecasts MY 2014/15 exports at 6 million 480 lb. bales (7.7 million 170 kg bales / 1.3 MMT). Data indicates that exports to Vietnam and Indonesia witnessed large shipments. MY 2013/14 export estimates are revised according to official data. 

Post’s MY 2014/15 import forecast is lowered to 1.0 million 480 lb bales (1.4 million 170 kg bales). Imported cotton prices are higher than Indian ex-gin prices and mills could be disadvantaged by buying imported cotton