Cotton farmers, traders hoarding stocks in the hope of higher prices
Sharad Matade 22 February 2011

Prices of cotton that are at record highs are expected to stay firm in the near future due to a global shortage

Cotton prices, which have touched record highs recently, are expected to stay firm as farmers and traders hold on to supplies in local markets, in anticipation of higher prices in the international markets.

"On anticipation of high prices due to a deficit of the commodity, farmers and traders prefer to hold stocks. This has led to slow arrivals in the market when demand in the domestic and international markets is very high. If this situation continues, the prices will not come down easily," said a senior official of the Maharashtra State Co-operative Cotton Growers Marketing Federation.
 
Like other commodities such as copper and rubber, the prices of cotton have surged to historical levels, as production has been lower in leading cotton-producing countries like Egypt, Pakistan, China, Bangladesh and Australia. On 11th February the March cotton contract on the benchmark Inter Continental Exchange (ICE) rose to $1.9455 a pound, a historical high on the ICE. In the domestic market, prices of cotton have more than doubled in the past year to Rs60,000 a candy (356 kg).

"Cotton demand has been high across the globe. But carryover stocks in the international markets are somewhere around 8.8 million metric tonnes. The three years' carryover figures were about 11.5 to 12 million metric tonnes, which means that the international cotton market is facing an acute shortage of the commodity and this has led to a rise in prices," Subash Grover, chairman and managing director of the Cotton Corporation of India (CCI), told Moneylife. "I think, the next year carryover stocks would be about 9.6 million metric tonnes." CCI is a government undertaking with 300 cotton procurement centres across the country.

Taking a cue from the soaring prices in the international markets, cotton growers are holding their stocks on anticipation of higher prices. After having recovered their production costs-as prices have doubled in just a year-farmers can afford to sit on stocks, while traders also pile up inventories aiming to get higher values. The total arrivals of cotton inched up by 5.4% to 24.4 million bales till the middle of this month.

The Ministry of Agriculture, in a recent estimate, said cotton production in the country in 2010-11 (June to July crop year) would be 33.9 million bales, which is an almost 40% increase from 24.2 million bales in the previous year. The Cotton Advisory Board also has raised its estimates for the crop year to 32.9 million bales from 32.5 million bales.

However, it is estimated that domestic consumption will increase by 10% to 27.5 million bales in the period September 2010-October 2011 from 25 million bales in the previous year.
 
But reduced supplies in the international markets after floods in China, Pakistan, Bangladesh and Australia has fuelled the price rise in the domestic markets also. Cotton prices have surged nearly 30% in just two months in the domestic markets. Prices in January which were at around Rs42,000 per candy have touched Rs51,000 in February. This compares with Rs27,000-Rs28,000 a candy a year ago.

"International prices are obviously influencing domestic prices, and at the same time the demand from end-producers of yarn and cloth is robust," Mr Grover said.

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