India. Cotton and Products Update. Dec 2014 Янв. 12, 2015
Post’s MY 2014/15 production forecast is 30.6 million 480 lb. bales, marginally lower than the USDA forecast. Inadequate rains and some damage have led to reports of yield loss in the states of Maharashtra and Gujarat. As international market prices are attractive in comparison with Indian cotton prices, imports are forecast slightly higher. Consumption is forecast lower as sources report textile mills have built up inventories. MSP procurement operations are underway across southern India.
Delayed Sowing and Weak Price Signals Appear to be Causing Slow Arrivals in Major Growing Regions
On November 26, marketing year (MY) 2014/15 cotton arrivals, as reported by the Cotton Corporation of India (CCI), had reached 3.58 million 480 lb. bales (4.58 million 170 kg bales/779,000 MT), 12 percent lower compared to the previous year. The major lag in arrivals appears to be in the central cotton growing states of Gujarat and Maharashtra. Arrivals in Gujarat and Maharashtra are slower by more than 50 percent compared to the previous year. Per day arrivals are averaging around 125,000 480 lb. bales (160,000 170 kg bales / 27,200 MT).
Trade sources indicate that farmers in Gujarat are holding cotton in anticipation of higher prices, but the delay in arrivals can be attributed largely to the late sowing and inadequate rains during the growth stage and subsequent effects on boll maturation. The seed cotton price continues declining and, although behind last year’s levels, the pace of arrivals across the country is accelerating.
Production Down Slightly on Weaker Yields and Inadequate Rains
FAS Mumbai forecasts MY 2014/15 production at 30.6 million 480 lb. bales (39.2 million 170 kg bales / 6.7 MMT). The cotton yield is forecast at 525 kg per hectare which is lower than the three year average of 538 kg per hectare. Trade sources indicate the yields have dropped in Maharashtra and in a few areas of Gujarat. Additionally, recent Post interactions with farmers in these states indicates yield losses in certain regions are due to inadequate rains which has reduced the number of bolls per plant by between 5 to 10 percent. MY 2013/14 and MY 2012/13 production estimates are unchanged.
Domestic Consumption Forecast Weak as Inventories Growing and IntBuying Weak
Post’s MY 2014/15 consumption forecast is 23.4 million 480 lb. bales (30.0 million 170 kg bales / 5.1 MMT). Although monthly consumption in September remained strong at 1.9 million 480 lb. bales (2.4 million 170 kg bales / 408,000 MT), mill buying remains weak on account of poor demand for seed cotton and cotton yarn. Global demand for Indian cotton, too, remains sluggish as ex-gin prices have now become higher than the Cotlook A Index. Trade sources indicate that textile mills have built up considerable inventories and are limiting their purchases of seed cotton. Post’s MY 2013/14 and MY 2012/13 consumption estimates are revised to 23.3 million and 21.9 million 480 lb. bales; respectively, based on official data.
Traders Looking at New Markets as Year-to-Date Chinese Lint Buying Lower
MY 2014/15 year-to-date exports (Aug to Nov) are considerably lower than the same period last year as demand from China is down. Nevertheless, the pace of year-to-date exports is now climbing as exporters are engaging smaller markets in Vietnam, Pakistan, and Bangladesh. Post forecasts MY 2014/15 exports at 6 million 480 lb. bales (7.7 million 170 kg bales / 1.3 MMT). MY 2013/14 and MY 2012/13 export estimates are revised according to official data.
Post’s MY 2014/15 import forecast has been raised by 200,000 480 lb. bales (256,000 170 kg bales / 43,500 MT) to 1 million 480 lb bales (1.2 million 170 kg bales). Imported cotton prices are competitive now with Indian ex-gin prices and mills could be disadvantaged buying Indian cotton. MY 2013/14 and MY 2012/13 import estimates are revised according to official data.
Minimum Support Price (MSP) Operations Accelerating but a Fraction of Forecast as Southern Producers Call for GOI Support
The Cotton Corporation of India (CCI) has initiated MY 2014/15 procurement of seed cotton under minimum support price (MSP) operations in central and southern cotton growing regions. As of November 27, CCI procured almost 900,000 480 lb. bales (1.15 million 170 kg bales) with almost 80 percent of the crop procured from the states of Telangana and Andhra Pradesh. There has been limited procurement in other cotton growing regions as arrivals have been delayed and altogether sluggish prices has encouraged farmers to hold back arrivals. In Maharashtra and Gujarat, it is estimated that CCI MSP procurement has been around 98,000 480 lb. bales (125,000 170 kg bales) and 51,000 480 lb. bales (65,000 170 kg bales), respectively. CCI is expected to procure enough seed cotton to account for around 4.7 million 480 lb. bales (6 million 170 kg bales /1 MMT) during the season.
CCI Procurements and the MSP Procurement Process
CCI procures seed cotton through market yards in an open auction whether or not prices are at MSP levels. In other words, CCI is in the cotton market at all times. Most of the time, CCI operates like a normal, for profit, business.
However, this year, CCI could be a larger cotton buyer under the MSP procurement process. In the MSP procurement process, the Government of India announces the MSP levels for cotton varieties at specified parameters during the cotton growing season. If market prices for those varieties go below the established MSP levels in certain production areas, CCI branches are directed to procure seed cotton at the MSP level provided that the commodity meets the established quality parameters (e.g., trash content, moisture, etc.).
Once the seed cotton has been procured by a CCI branch under market or MSP conditions, the seed cotton is transported to a storage center. From there, CCI invites tenders from ginning and pressing units (GPUs) for processing. The GPUs are located closer to the cotton storage centers so as to also cut down on transportation costs. The processed cotton lint is sold via an electronic auction system. Usually, the MSP processed cotton lint is sold at a loss. Note: the cottonseed from market and MSP operations is sold, as well, via auction at prevailing market prices. The losses incurred by CCI on seed cotton procured under MSP operations are reimbursable by the Government of India, Ministry of Textiles on an accrual basis