It seems that world cotton markets have either began to ignore the statistics coming out of Pakistan or declared them unreliable. As the Pakistan Cotton Ginners’ Association (PCGA) reports the second worst seed cotton arrivals in a decade, independent forecasts of Pakistan’s crop performance stand steadfast behind their predictions of a decent revival.
That Pakistan’s cotton crop is underperforming in the 2024-25 kharif marketing season is not news. Reports of weak arrivals have been trickling in since at least mid-July. However, it has taken two months of data before it could be asserted with a degree of confidence that cotton arrivals, as reported by PCGA, have dramatically declined, and there may be very little chance of recovery from here on out.
Although historically Pakistan witnessed no more than one-fourth of its total seasonal arrivals accounted for by mid-September, the trend shifted dramatically over the past two years. Early sowing varieties with greater resilience against extreme weather conditions replaced cotton varieties across much of traditional sowing areas, with as much as 45 – 50 percent of total season arrivals being accounted for by mid-September.
Of course, one version insists that cotton cultivation has switched back to late sowing varieties, and at least three-fourths of annual arrivals are still awaited. That claim is lent credence by the fact that many growers in the wheat-cotton rotation were unable to offload their grain inventories early on due to April 2024 price crash and were thus liquidity starved to target early cotton sowing. But remember, these growers weren’t just liquidity starved. The crash in wheat prices also led to financial losses for much of the farming community, forcing them to hold back on investment in inputs during the following kharif season. Thus, both acreage and yield face tremendous downside risks.
Nevertheless, late sowing is not out of realm of possibility. However, one must wonder – for any grower carrying losses from wheat, why would cotton appear to be an attractive proposition in summer 2024? For one, cotton itself had suffered under downward pressures, falling some 40 – 50 percent on both international and domestic indices (Cotlook and KCA). Importantly, farmers received suboptimal – below intervention prices – during 2023-24, despite election year populist rhetoric. Demand from milling did not offer any hope, as the textile sector persists with negative signaling with constant howling of looming credit defaults and industry closures due to high energy tariffs.
Most importantly, data from PCGA is pessimism galore. So far during the ongoing marketing year, the association has released five fortnightly reports, which report declining arrivals/flows every fortnight. How late exactly is this late sowing? Either the PCGA is reporting false data, or the milling segment has setup ginning operations overnight – with mills directing procuring seed cotton from the mandi’s.
That’s if you insist on believing that USDA projections of 7.1 million bales (of 170kg) cotton production are on track. Significantly, that number should not be so wide off the mark. After all, USDA’s cotton cultivation estimates are very much in line with actual surveys reported by provincial crop departments, and its yield assumption is close to 5-year average – which includes at least two seasons of crop failure caused by extreme weather events. In absence of any major weather event, it appears USDA’s forecasters are working under the assumption that there is little reason for crop yield to vary significantly away from last 5-year average.
Whatever the reality, even with a wide range of 5 – 7 million bales, cotton crops are all set to underperform overwhelmingly compared to last year, when yield shot up dramatically. That means cotton import bill is all set to shoot up, subject to inventories held up with milling industry from last season. Recall that APTMA reported a 20-year low in cotton yarn production during last year, despite the reportedly 5-year high cotton crop production. That means the buying side has a lot of carryover inventory, with very little appetite for fresh crop, which might explain the absence of upward price pressures on fresh cotton arrivals, despite the reportedly weak domestic crop performance. Either way, cotton import volume of 3.5 – 4 million bales (of 170kg) is almost certain.
How much will that cost? That’s tough to say as yet. If world cotton forecasts are yet to incorporate the poor crop performance by the world’s fifth largest producer, there may be some upward movement in international cotton prices. However, will upward price pressures emanating from supply deficit in Pakistan be sufficient to cancel out the recessionary headwinds in global textile trade? It is too soon to say.
Either way, for so long as international cotton prices find resistance at 90 cents, Pakistan’s cotton import bill during 2024-25 shall remain contained under $1.4 billion. That’s a lot of money, but very much on track with past 5 years.
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