The tussle over cotton crop estimates is now out in the open. Earlier this week, this newspaper had reported that farmer lobbyist groups such as Pakistan Kissan Ittehad (PKI) have contested the official estimates of cotton crop as notified by the Federal Committee on Agriculture, insisting that vested interests had exaggerated reports of crop performance to suppress local market prices. PKI’s position has now received credence after the release of fortnightly crop arrival report from Pakistan Cotton Ginners Association (PCGA), which reports lowest crop arrivals in 10 years for the fortnight ending October 15th, minus the two flood years of FY21 and FY23, when the cotton crop had become victim to extreme monsoon weather events.
For the fortnight ending October 15th, PCGA has reported ginned bales arrival of a little under 1 million bales, when the 10-year average for the same period is 1.5 million bales (or 1.7 million bales, excluding the flood years). In fact, cotton arrivals during the fortnight are 11 percent lower than the preceding fortnight ending September 30th, when national arrivals clocked in at 1.1 million bales.
So, are the cotton arrivals already slowing down? Two theories may explain what may be at play. First, farmer bodies and ginning association have publicly conveyed their alarm over the precipitous decline in local cotton prices since July 2023, where prices in local currency terms (LCY) have declined by nearly 23 percent, even though prices in the global market have remained firm during the same period between 85 – 90 cents per lb. The downward trend in the local market began in August after news of bumper crop tumbled market sentiments during peak harvest season. Since then, Pak Rupee’s dramatic rise against the US dollar put the local market prices in reverse gear, bringing average local market prices below the global average.
No surprise then that farmers, ginners, and investors alike are holding back on second and (in some areas of Sindh, third picking) of the crop in hopes of a price recovery. According to cotton market veteran Naseem Usman, trading volume in the domestic cotton market has evaporated over the past several days, with sellers holding back. Already, market participants anticipate that the Rupee’s against-odds rise over the dollar shall soon come to an end, firming cotton prices in the local market based on currency parity, even if prices don’t recover based on supply-demand position in the local market.
Which means that the current decline in the cotton arrivals is a blip, and crop prospects may recover in the coming weeks, bringing the national output closer to the vicinity of 11 million bales target set by the federal government and repeatedly hailed by the interim commerce minister. No harm, no foul?
BR Research disagrees. A time-series analysis of cotton crop arrivals as reported by Pakistan Cotton Ginners Association (PCGA) over the past 10 years establishes with certainty that the cotton crop harvest season has been gradually shifting backwards, with national levels arrivals peaking by September end in most years. In fact, crop arrivals as reported by the ginners association show that the cotton crop arrivals had climbed up to 3 million bales by end of August 2023, and have struggled to add barely 2 million bales in six weeks since.
The phenomenon is well reported and understood among market participants and the farming community. Cotton crop’s increasing susceptibility to monsoon rains and basin flooding beginning July and devastation of crop twice during just the past three years have increasingly convinced farmers to shift cotton crop cultivation to Feb - Mar (from May – Jul in yesteryears), such that second picking is already in by mid-August in many major producing regions such as Sanghar, Jhal Magsi, and southern Punjab districts. As a result, there is strong evidence of cotton crop peaking in early months by September, with fewer bales added between Oct – Jan.
Historically, farmers usually wait for second and third pickings of the crop if there is major upward price pressure in the market, or significantly higher profitability in cotton compared to substitute crops. However, considering that local market prices have been struggling during the peak harvest season, many farmers may not see the wisdom in waiting out for third pickings, given the high level of vulnerability of cotton crop to weather events, and pest attacks. Moreover, since most cotton farmers rotate the crop either with wheat or spring maize, higher profitability in wheat crop along with availability of early sowing varieties may convince most farmers to free up the land for preparation for rabi season. Primarily, farmers of spring maize and other minor oilseeds can afford to wait out until late Dec and Jan, but those are not nearly enough to take the crop output over the 10 million bales threshold.
Recall that while acreage under the crop has definitely done well in the current season, there is no evidence to prove that crop yield has surpassed the historic high-side average of 730 kg per hectare (minus years of poor yield when crop fell victim to weather events or pest attacks). Even at national acreage of 2.2 million Ha, farmers may barely achieve 9.5 million bales, after accounting for multiple rounds of picking.
Pakistan’s cotton crop has definitely staged a recovery. But exaggerating estimates by officials for grandstanding does little good to farmers. No reason that the small wins cannot be celebrated without going out of touch with reality.
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