The country’s new cotton season has started on a very bearish note, mainly due to low quality of the fibre as a result of delayed monsoon, according to the latest report of Cotton Guru, a cotton advisory for farmers.
The MSP of cotton for the 2019-20 season is Rs 5,550 per quintal, against Rs 5,450 in the previous year. Prices of raw cotton or kapas are currently ruling between Rs 4,700 and Rs 5,250 per quintal, depending on the quality and the moisture content.
Indian farmers had achieved a record cotton-sowing of over 125 lakh hectare and with sufficient rainfall, the country’s cotton crop seems to be good especially during September and mid-October, said Manish Daga, founder, Cotton Guru. “We may very well see an increase of over 20% in Indian crop during 2019-20 if there are no more damages to excess rainfall or diseases.”
According to Daga, although the arrivals are delayed, millers are worried. Seed cotton prices were ruling below MSP and there was a lot of pressure on the government to intervene, he said. Texprocil has already appealed to the government to include cotton yarn in the interest subvention scheme and also rebate the embedded taxes, such as agricultural cess, mandi tax, power and fuel surcharge which incurred in the production process, he added.
The Rebate of State & Central Taxes and Levies (RoSCTL) scheme which rebates these levies should be extended to cotton yarn segment at the earliest and this move would ensure that the industry exports only products and not the taxes, it added.
Exports held the key to price movement of Indian cotton during the new season and domestic demand would take time to pick up, he said. During August 2019, Cotton Guru had indicated that the Indian cotton market was overpriced and there was a scope of correction, he said, adding that the advisory has been giving a sale call to farmers since February when the trade war seems to last longer than expected.
“For all the other stakeholders of the textile industry, we were strongly advocating cost reduction, risk management and innovation as need of the hour,” Daga said. “During the 2018-19 , there was a probability of record low carryover stock in India, while on the other hand, the Indian ginners were in disparity. This prompted many ginners to hold stocks, some beyond their financial capacity. As a result, many ginners made losses on inventories as well as delayed payments and bad debts in spinning mills.”
As for the spinning industry, textile industry had raised an alarm over the consistent fall in cotton yarn exports in the past three months due to sharp decline in demand from importing countries, such as China, Bangladesh and South Korea, besides duty-free access given by China to competing Pakistan, he observed. With India exporting over 30% of its cotton yarn production every year, yarn exports are crucial for the spinning sector. The export of cotton yarn from India in the first two quarters of the financial year ended June was down by over 30%.
As a result, many mills across the country had reported stock pile-ups and production cuts in recent months, Daga said. Since last two months, the mills voluntarily and compulsorily chose to reduce inventories. This put immediate breaks on cotton prices.
Also, a prospects of a very high new season crop added to the bearish sentiment, he said. The prices of old season cotton would have definitely risen if there was a gap in the new old and new season. However, the gap was smoothly filled by production cuts, stock with ginners, low demand and a bearish international market, he said.
In August, Daga had stated that the farmer must sell kapas as cotton prices are unlikely to increase due to weak demand in cotton yarn and fabric. Significantly, the Cotton Corporation of India (CCI) has commenced procurement of the fibre in Punjab and Rajasthan since cotton prices have come under pressure in these states. The purchase has begun in the North after a gap of nearly three years when the government has given permission for direct purchase of the crop. The procurement is in minimal quantities because the moisture content is high. Last year, CCI had procured 10.70 lakh bales under MSP.
Published On : 19-10-2019
Source : Financial Express
