Steady rise in Indian cotton prices

Indian cotton prices are seeing unusual rise during the current peak arrival season. While, cotton production all over the world is on the rise, the cotton situation in India is getting serious attention due to steady rise in prices.

Spot prices of Sankar-6 and MCU-5 varieties are about Rupees 42,500 and 44,000 respectively per candy (355.6 Kg).

Currently, it is peak cotton arrival season in India, but the arrivals have been lagging behind what it was during the same period last season. While flowering was not that good, weather could not be blamed, as it has been reasonable for cotton during the growing season. The volatility has been attributed primarily due to trading issues and Indian government’s recent banknote demonetisation policy. Three different sources who are into cotton marketing, purchasing and spinning expressed the same reasons for the sudden increase in cotton prices.

The general manager of a 65,000 ring spindle mill in South India, stated that his company procures about 40,000 bales (170 Kg each) of cotton each year at an overall price tag of about Rs 60 crore (Rs 600 million). The variation of about Rs 1000 per candy in a day, can result in lot of economic upsets for mills in India. Since December, the price has increased by about Rupees 4,000 per candy.

A source familiar with marketing, stated that arrivals have been about 150,000 bales per day (1.5 lakh bales per day), which is less by 50,000 during the peak arrival timeframe. Normally, the arrivals are about 200,000 bales per day (2 lakh bales per day). Cotton farmers are reluctant to trade on credit and expect to be paid in currencies, which is currently difficult in India. Additionally, they are in a way waiting to sell cotton so that they could realize higher prices, the source stated.

The view from the spinning mills is that yarn prices are stable and there is demand for yarns and made-up goods such as bedspreads in export markets. This increases the demand for cotton and hence there is increase in the price of cotton. It looks like cotton price, come this March, is going to be steep when the peak arrival season ends in India. Overall, the agriculture market is expected to be bullish in the coming months.
By: Seshadri Ramkumar, Texas Tech University, USA