Cotton set for a rally with closing stock at 6-year low

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With closing stocks of cotton projected to be at a six-year low for the current season, ending September, prices of the fibre crop have started firming up as the new crop arrivals are expected from mid-October onwards.

According to the Cotton Association of India (CAI), cotton carry-over stock from the 2017-18 season is estimated to be 16 lakh bales (each of 170 kg), which is said to be the lowest since 2011-12.

“Such low carry-over stock of 16 lakh bales is a matter of concern for the cotton industry,” said Atul Ganatra, President, CAI. The new crop arrival, according to industry sources, will take place by the middle of October, still three-four months away. “Cotton sowing has been delayed due to delayed rains in the growing regions. We expect sowing to take place by Mid-July. The cotton crop cycle requires at least 120 days for first picking. This means, new crop arrival will take place by mid-October. Till then we are hand-to-mouth in cotton supplies,” said Arun Dalal, a leading cotton trader in Ahmedabad.

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In its balance sheet for the 2017-18 cotton season, CAI has estimated total cotton supply the till September 30 at 410 lakh bales. This includes the opening stock of 30 lakh bales in October 2017. Domestic consumption has been higher, at 324 lakh bales, while exports, at 70 lakh bales, are higher than earlier estimates of 50-55 lakh bales.

“Around 93 per cent of the total crop for the season has already arrived in the market up to May 31, 2018,” said Ganatra. Amid heavy demand from millers and exporters, cotton prices started spiralling upwards to touch ₹47,000 a candy (each of 356 kg) recently. “The prices have jumped sharply over the past two months and we see a further rise as the carryover stock is limited and demand is strong. It may not be surprising if the prices test ₹49,000 in the next few weeks. In 2011-12, when the stock was at similarly low levels, the price had touched ₹54,000 a candy,” said Dalal, hinting at a further bull run.

In its May estimate for the 2017-18 season, beginning October 1, 2017, CAI had estimated the cotton crop at 365 lakh bales, 5 lakh bales higher than its previous estimate. The rise in the estimates comes from 3 lakh bales in Gujarat, one lakh bales in Karnataka, 50,000 in Andhra Pradesh, and 25,000 bales each in Madhya Pradesh and Tamil Nadu.

Source : Business Line

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