Cotton arrival figures up to 1st November which are likely to be available by 3rd or 4th November, appear to be very great important in determining the expected size of current cotton crop.
As on 16th October, 10, cotton arrivals stood at 4.173 local weight bales against 5.048 bales same period last season. Therefore, the shortage comes to 0.875 million bales. Last season, cotton arrivals as on 1st. November was 7.364 million bales and this time, some 6.0 to 6.2 million bales are expected. Thus the shortage may increase between 1.136 and 1.364 million bales.
The question is whether the shortage over last season would further increase or it would be recovered in next couple of fortnights. In fact, this cotton crop is late by 3 to 4 weeks and the increasing trend of cotton prices have led the suppliers to hold up cotton for even better rates. Last week, seed-cotton prices touched the ever highest level of Rs 4,100-4,200 per maund of 37.324Kg ex-gin while cottonseed touched the highest of history at Rs 1,200 per 40 Kg ex-gin and lint cotton at Rs 8,600 per 37.324 Kg ex-gin. As such, the peak arrivals may be seen in November month.
Last season, peak arrivals were seen in October month at 4.316 million bales while in November month 3.064 bales and in December month 1.503 million bales. This season, we may receive about 3.4 million bales in October month and expect 3.7 million bales in November month and 1.7 million bales in December month to reach season's total arrival of 11.4 million bales equivalent and finally finish crop between 11.6 and 12.0 million bales. Reports from lower Sindh indicate almost same production of last season but crop in upper Sindh may be shorter than last season. Punjab crop is of course considered short between 7.6 and 8.0 million bales and Sindh around 4.0 million bales.
Last week, cotton prices in the domestic market touched the historical high of Rs 8,700 per maund of 37.324 Kg exgin while New York December 10, contract crossed US Cents 130 level on 26th this October month. On the close of the last week, cotton was traded around Rs 8,300 per maund. KCA's Spot Rate touched ever highest at Rs 8,420 per maund on 26th, this October month and was maintained for another 3 days till 29th October.
General consensus is that peak rate of the same may not be far as the spinning mills specially the open-end spinning mills, which normally produce low count yarn up to 21s, are in trouble as they cannot afford to operate their mills on profits at so high cost of raw cotton. Abnormally high prices of raw cotton have increased the share of raw cotton in total cost of yarn. In domestic market, yarn availability has tightened in view of reduction in utilisation of spinning capacity and the weaving, knitting and garment manufacturing sectors are demanding of the government to put ban or at leased cap export of cotton yarn to a reasonable level so as to make smooth availability of yarn to local industries at reasonable prices.
The spinning sector also wants that exports of raw cotton should be banned as Pakistan already appears to be short of its cotton requirements equivalent to about 2.5 million 170-Kg bales. Exports of raw cotton should be banned and that of yarn to be capped to 50,000 m/tons a month. Pakistan booked import of some one million cotton bales from India mostly at rates below US Cent 100 /lb while the present rate is 40% more. This import of one million bales Indian cotton appears in jeopardy due to Indian government's restrictions and limitations on registration of export contracts. Indian merchants have already committed export sales of 5.5 million 170-Kg bales and have got these sales registered with the Textile Commissioner's Office and shipments are scheduled to commence from 1st. of November month and is likely to be completed by December month.
Different organisations / Associations representing cotton and textile sectors of US, European Union (EU), China, Bangladesh and Pakistan are approaching / contacting Indian government to honour the cotton export commitments by making due shipments to foreign buyers but simultaneously India's spinning, weaving, knitting and garment manufacturing sectors are exerting pressure on Indian government to postpone cotton shipments till January, 2011 so that the domestic cotton industries procure cotton to their requirements. As a matter of fact, Indian cotton exporters being have committed default by not shipping required raw cotton as per contract terms and conditions. Let us see if India starts cotton shipments from 1st of November as already committed.
Season's total cotton export commitments by the end of October month are understood to be between 200,000 and 250,000 bales against which some 169,771 bales have been registered with the Trade Development Authority of Pakistan till 23-10-10 of which some 42,013 bales are reported to have been shipped.
If the business conditions remain the same, it is likely that Pakistan raw cotton exports may go close to 700,000 to 800,000 bales in this season. Powerloom and other textile sectors have threatened to go on three-day strike in protest of power and gas loadshedding in Faisalabad area. In winter, gas loadshedding would also start hampering the industrial production. Pakistan' domestic cotton requirements is now estimated around 14.0 million bales.
New York cotton futures have touched historic high of US Cents 130.50/lb on 26th October, 10. The A-index posted an all-time high of US Cents 147/lb. commodity prices appear drawing closer to saturation point where there will be lot of pressure on US currency. The investors are looking towards discounting of treasury bonds to create surplus funds to provide cushion to commodity market. The US dollar hit a new 15 year yen low on Monday on hope the US Fed Reserve could deliver more stimulus next week in a second round of so-called quantitative easing measures, known as QE2, said AFP report.
Further this report says that the prospects of QE2 could help protect economic growth and support raw material prices in the longer term. There are reports of cotton crop damage in US by poor weather beside similar damage in China. In case, the investors opt to discount bonds, the US Fed Reserve may start buying these bonds to keep US dollar values at a reasonable level.
Globally, the cotton turmoil, mostly created by crop damage in Pakistan, China and US, strongly cotton demand and restrictive and uncertain Indian policies on export of raw cotton have pushed cotton market to hazardous zone where market explosion appear eminent not later but sooner. As the sustainability of strong cotton market has become difficult so after the market erosion, it would become more difficult to halt the decline at appropriate stage.
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