By: S. Sujatha

Due to a tight supply situation, high price levels will be maintained in the international market in 2011. At ICE futures US, cotton is trading at around $1.4385 per pound for March 2011 delivery. For May and July, it is trading around $1.3761 per pound and $1.2930 per pound respectively. The combination of low global stock and continued demand from mills is keeping the prices bullish. Flooding in Australia and Pakistan and hail in Texas, the biggest US producing state, damaged crops. China's imports will jump 56% this year, according to US Department of Agriculture data. Export cap in India has also led to a lower global stock level whereas the demand from mills is rising steadily.

Domestic prices

While the estimated output of cotton this year has put India in an enviable position globally in holding raw material stock, the unseasonal rains have dashed all hopes of Indian cotton consumers. Now with each industry association predicting a different quantity as estimated output, final figures will be out only around March. With exports being allowed to leave the country before February 25, the prices will slowly slide from March. At present, Shankar-6, the widely used Indian variety, is selling at 41,800 per candy (each 170 kg) in the spot market.

India's output

The favorable agro-climatic conditions during sowing, increased use of BT seeds, and rise in acreage have led to a record production estimate this season. As per the Cotton Advisory Board estimation, the country's production is expected to go up by 10% to 32.5 million bales compared to last season despite untimely rains and inclement weather conditions in November. The domestic consumption is estimated at 26.6 million bales. Though the rains have slowed arrivals initially, leading to high prices, the situation is said to be better now with more arrivals of kapas.

Cotton acreage

The increasing demand for cotton from China and the developing economies like Pakistan, Bangladesh, and Vietnam has led to bullish prices in the last two years. It has also encouraged farmers to increase cotton sowing acreage. The robust demand will not only increase prices but also enhance production. Globally, the area under cotton is expected to reach 35 million hectares in 2011 and cross 36 million hectares in 2012. Prices soared 92% in 2010, touching a record $1.5912 on December 21. The fiber is the best-performer among the 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index. The gauge rose 17% this year.

Originally published in The Economic Times dated Jan 3, 2011 by S. Sujatha.