Trade Analytics

Go Back

Cotton acreage to go up on better returns

Business Standard:  May 03, 2017

Mumbai: Comparatively high cotton prices in 2016-17 and continuing in this financial year will encourage farmers to grow more this year. However, the demand for cotton, especially by mills, is also rising which will result in a consistent fall in year-end stocks, says the International Cotton Advisory Committee (CAC).

The total area under cotton will go up by five per cent globally to 30.8 million hectares in the 2017-18 cotton year (July-June). On India, it says this is forecast to “increase by seven per cent to 11.3 mn ha in 2017-18, as farmers are encouraged by better returns due to high cotton prices and improved yields in 2016-17. Assuming yield is similar to the five-year average, production could increase to just under six million tonnes”.

The government’s textile commissioner estimated yield in 2016-17 at 568.29 kg/ha, better than in previous years.

Prerana Desai, vice-president at Edelweiss Agri Services and Credit, said: “Cotton has seen a unique season. In response to demonetisation, farmers delayed selling their produce and dictated the price through the season. As the seasonal price trough did not play out, the mills were caught unaware and missed out on an opportunity to make purchases at the lower prices. Farmers in Rajasthan played a crucial role this season. Lower crop, along with increased local consumption in Gujarat, increased the raw cotton deficit in Punjab and Haryana, second largest consuming region after Tamil Nadu. Import parity for mills in the north emerged in March itself and these have ended up importing a very large quantity of US cotton this season. This has improved their yarn realisation and US cotton might have earned some loyalty in this traditionally non-importing region of India.”

Production of around six mn tonnes enables India surpass China and US by quite a high margin. China’s production is expected to be higher by one per cent to 4.8 mt, the first increase in five seasons. Farmers in the US are forecast to expand the harvested cotton area by 12 per cent to 4.3 mn ha. Assuming yield of 938 kg/ha, production could grow by eight per cent to four mt, says ICAC.

Another reason, apart from higher cotton prices, for a global increase in sowing is lower realisation from soybean prices. As a result, said an exporter, farmers switched from it to cotton.

In India, despite high prices, imports have seen a sharp rise. According to Prerna Desai, “Year to date imports (October-March) are around 980,000 bales (each 170 kg)vis-à-vis 450,000 bales imported during the same period last time. While mills in the country have been quoted saying that India will import more than three mn bales this season, we are of the view that the pace of import will slow down from here. Softening domestic prices has seen import parity disappear for mills in the south and flatten for mills in the north. India imported around 2.3mn bales in 2015-16 and might end up by importing a similar or slightly lower quantity this season as well.”

Imports by China, now the world’s third largest cotton importer, are expected to increase by three per cent to 987,000 tonnes, as sales from China’s reserves and its stock is falling.

India’s exports are projected to decrease by 30 per cent, to 886,000 tonnes.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.