Depleting stocks coupled with strong demand from mills keeps cotton prices bullish

Strong demand from mills, fast depleting domestic stocks, higher than expected exports and an expected decline in area being presently sown under the cotton crop are keeping cotton prices bullish.
State agency Cotton Corporation of India (CCI) increased cotton prices by Rs 100/candy on Tuesday and again by same amount on Wednesday. In all, it has increased the cotton prices by Rs 2500/candy since June 15. “Since international market showed an upward trend up to Rs 7500/ per candy and MCX rose by 6000 per candy therefore in tandem, CCI has nominally increased selling price of cotton by about Rs 2500/candy and in some variety by 3000/ per candy since June 15, said Pradeep Kumar Agrawal, chairman, CCI.

He added, "These are our floor rates, and we are getting about Rs 200-500/candy more than the floor price in the competitive bidding. There is good demand for cotton even at high prices.”

The present minimum selling price of CCI is Rs 51,000/candy. CCI had a stock of 1.50 crore bales as on October 1, 2020, of which, it holds only 10 lakh bales as on today. According to trade insiders, CCI has sold out the stocks in central and the south zones and is currently holding stocks only in the north zone.

Traders said that the demand is so strong that they are buying at Rs 1000/candy above the floor price since past 4 days.

BS Rajpal, president, Maharashtra Cotton Ginners’ Association said, "Cotton prices have been increasing as the consumption of cotton by mills is strong, which is depleting the domestic cotton stock. Some spinning g mills have shifted from polyester to cotton due to good demand for the latter. Export of cotton is also strong. We have already exported about 70 lakh bales of cotton against the estimate of 60 lakh bales. By the end of the season, India may export 75-80 lakh bales of cotton. Another factor supporting prices is an expected fall of about 10% in the area sown under cotton in the current kharif season."

Though the government has estimated a closing balance of 120 lakh bales as on September 30, 2021, traders claim that the closing balance could be much smaller as the increase in consumption by mills has not been accounted appropriately. “The reason why prices are increasing, and we still have buyers at these high prices is that the closing stocks are looking less,” said a trader who did not want to be quoted.

The South Indian Mills Association and the Cotton Association of India have demanded that the duty-free import of cotton be allowed to ease domestic prices.