Recent rainfalls in cotton areas of Punjab and Sindh are reported to be quite beneficial to the development of cotton crop, increasing prospects of a bumper crop. In early sowing areas, harvesting is already in progress.
In late sowing areas crop is at flowering stage while in prime sowing areas it is at boll formation / boll development stage. Although there are no reports about any heavy rain but fears are there.
The next five weeks, up to the end of September appear quite crucial for the crop due to possible heavy rains and then pest attack.
Arrival of seed-cotton in ginnneries/markets in Lower Sindh and in some areas of central Punjab is getting momentum. Growers are reportedly getting better yield and quality is also better.
On testing and examining the new crop cotton / lint samples, quality was found much better in terms of grade, staple length, micronaire and fibre strength. If the crucial month of September passes safely without any sizeable damage to cotton crop then Pakistan is likely to harvest a bumper crop of 11.5 million bales.
Domestic cotton consumption is precisely not known due to poor and defective system of collecting statistics but it is estimated around 13.0 million bales.
Spinners are picking up new lots on priority. Old crop unsold stocks, which are estimated around 200,000 to 250,000 bales, are receiving poor attention of the buyers due to poor quality.
The present level of new crop lint prices around Rs 2,300-2,350 per 37.324 Kg ex-gin is quite attractive in comparison with prices of matching foreign growths which are Rs 250 - 300 per maund higher.
The recent announcement of the government for allowing Trading Corporation of Pakistan (TCP) to step into the market as an alternative buyer of lint cotton will ensure payment of Minimum Support Price of Rs 925 for 40 kg seed-cotton to cotton growers in 2004-05 season - equivalent to Rs 2150 - 2200 per maund of lint cotton.
However, the government has allowed Trading Corporation of Pakistan to procure 100,000 bales initially without sustaining any loss in transactions. This is a trade, and nobody can guarantee loss-free operation.
Trade circles understand that unless cotton prices crash below the level of Rs 2,000 per maund, TCP may not enter the market.
The parity of Minimum Support Price of Rs 925 per 40 kg works out to Rs 2150-2,200 per maund, and this is supposed to work as a benchmark for the market, and the buyers--spinners / exporters--would like to keep lint prices above this level.
The TCP has invited applications, through press advertisement, for appointment of 'Cotton Procurement Agents' for its 12 cotton procurement centres. The conditions set for procurement agency are so hard, unrealistic and unworkable that hardly a few companies may fulfil these conditions.
Trade circles believe that it is a futile exercise for giving an impression to cotton growers / ginners and cotton trade that TCP would operate in the market. When TCP has authorisation for procuring only 100,000 bales, and TCP is maintaining its own offices in upcountry, the appointment of Cotton Procurement Agents would be quite superfluous and a burden on national exchequer.
Why TCP cannot itself handle only 1 percent of total production? Does it not adversely reflect on its efficiency and capacity?
The present level of yarn prices is said to be quite viable for the prevailing new crop lint prices. However, the spinners would discourage any increase in lint prices. Viable and friendly yarn prices would support cotton prices.
The increasing trend of embracing value-addition in textile industry is also creating some accommodation in cotton purchase prices. Spinners would like to make maximum purchases at viable prices.
The spinners are reported to have booked substantial amount of new crop foreign cotton, equivalent to 0.7-0.8 million local bales, but for remote shipments--in January, 2005 and onward.
Cotton prices registered increase of some Rs 100 to Rs 150 per maund during last week, mainly on higher New York advice.
In 2003-04 Pakistan cotton market had followed the US cotton market and the result was that ginners could not sell their cotton when prices were high, and were caught up in receding market sustaining heavy financial losses.
This time, the ginners should mostly rely on yarn and textile market for direction of cotton prices as sometimes New York cotton market is led away by speculation.
Some 50 ginning factories are reported to be operating in new crop cotton, both in Punjab and Sindh. Ginners are reported overbooked and deliveries of lint cotton to spinners are getting delayed.
Lint cotton was selling at Rs 2,150 to Rs 2,200 per maund of 37.324 kg ex-gin which, on the close of the week, rose to around Rs 2,300 to Rs 2,350 per maund.
During the week, New York cotton futures registered a robust increase of over 7.0 cents per lb. October contract closed at 50.80 cents and December at 51.23 cents per pound, increasing by 7.25 and 6.93 cents, respectively, apparently without any solid ground.
Neither any report on damage to cotton nor of any increase in cotton consumption was received from any cotton producing or consuming country.
The short position in New York Hedge market had crossed the level of 40.4 percent and, considering the price level of 43.0 cents per lb as bottom price, the speculators bought heavily to reduce their short positions.
Also, the speculators may play with the market before confirmation of world bumper crop by the end of September.
However, a general consensus is that the recent steep rise in New York cotton prices may be reversed in next 10 to 15 days, as it acted on speculations.
US is expecting a bumper crop of 20.14 million 480-lb bales against its last estimate of 18.0 million bales.
China may harvest record crop of 30 million 480-lb bales; India 12.5 million bales; and Pakistan about 9.0 million 480-lb bales.
The world cotton production may touch the record high level of over 106 million bales while estimated world consumption may touch the level of 100 million 480-lb bales in 2004-05 season.
The present global economic and political situation is not considered satisfactory. World crude oil prices are touching the record high level of $50 per barrel. US government and public are engaged in elections and possible defeat of Bush government may for some time slacken US economy to some extent. Chinese economy, specially textile sector, is facing difficult situation due to high cost of supply of raw cotton, easy conditions in yarn and textile market, slowed down textile production, power shortage, over-heating of economy, increasing inflation rate and over-investments in fixed assets.
The beginning of new era of free trade in world markets from January, 2005 under WTO, volatile political situation in Middle East, high oil prices, record high cotton production and larger global cotton surplus may cast bearish effect on cotton market.
Only a report of larger damage to cotton from any prominent cotton producing country may reverse the market trend.
According to a report in The Economist, Chinese invest too much, Americans save too little while Europeans, specially Germans, spend too much. The fate of world economy in the year to come would depend on how these imbalances are resolved.
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