It was a surprise when unexpectedly this writer saw cotton on plants, in roadside collection centres and on trucks on the road in Hyderabad, Sanghar and Hala cotton areas of Lower Sindh in his tour last week, although cotton harvesting had commenced some five months back in this area.
Fields reports indicated that arrivals in other cotton areas, in Upper Sindh and Punjab, are still continuing.
Taking stock of the present cotton situation, I estimate that this season's total cotton crop may touch the level of 10 million bales, surpassing last year's production figure of 9.7 million bales.
Although latest cotton statistics may not be available before February 16, but total arrivals of seed-cotton up to February 15 are estimated to be equivalent to around 9.5 million local bales ex-gin.
As the system of collection of cotton data through Pakistan Cotton Ginners Association has been under criticism for the last some seasons and the main stakeholders were not satisfied with the system of cotton data collection, the Government is understood to be considering some alternative proposal which may make cotton data collection more reliable, accurate and acceptable to all cotton stakeholders.
Against the Government's crop estimates of 10.0 million local bales, earlier some prominent ginners estimated a very low crop output--around 8.5 million bales--which pushed up seed-cotton prices to touch the level of Rs 1,600 per 40 kg and lint cotton prices to Rs 3,600 per 37.324 kg ex-gin.
As such, the ginners procured large amounts of seed-cotton at prices ranging between Rs 1,400 and Rs 1,600 and started holding up sales of lint cotton in the hope of getting higher price.
Now, the ground realities are favouring the government crop estimate of 10.0 million bales.
Better quality lint cotton prices have come down to the level of Rs 3,200 while low grade cotton is selling around Rs 2,700 per mound.
Carrying charges on unsold cotton are also adding to the lint prices. The world trend of cotton prices has reversed and lint prices appear weak. New York cotton futures have dropped from the level of 84 cents to 65 cents a pound.
In view of the withdrawal of GSP facilities by European Union on import of cloth from Pakistan and imposition of anti-dumping duty on Pakistan's export of bedlinen to European Union, our total exports are feared to cause a drop of up to $1.0 billion in export target of $12.1 billion.
These developments in the textile sector are likely to caste negative impact on local lint prices.
Admittedly, lower crop estimates stimulate cotton prices in favour of growers who sell seed-cotton to ginners, and higher crop estimates favour the interests of spinner who buy lint cotton from ginners, but only realistic crop estimates favour the ginners who are, at the same time, buyers of seed-cotton from growers and sellers of lint cotton to spinners
The matter of restoration of futures trading in cotton through Hedge Market is in limelight these days.
Cotton stakeholders and interested groups are conducting meetings and deliberations in this regard.
The Karachi Cotton Association (KCA), being the mother of Cotton Hedge Market, wants restoration of Hedge Market under its aegis, while other trade groups want it under National Commodity Exchange (NCE).
The KCA has wide experience in operation of hedge market, infrastructure facilities, well updated bye-laws, own building, good reputation and representation of all cotton stakeholders which make its case very strong for restoration of Hedge Market under its control.
The most important technical point in favour of KCA is the designation of all cotton ginning factories as cotton delivery points for cotton tenders while reportedly the procedure for operation of hedge market under National Commodity Exchange has no provision for physical delivery of cotton but only settlement of bargains.
A financially strong trade group which is reportedly holding a lot of idle money is very much interested in opening Cotton Hedge Market under National Commodity Exchange and is motivating ginners and cotton brokers to join it for cotton futures trading.
This move has increased the value of cotton broker's licence by more than 400 percent to around Rs one million in a few months.
As to the viability of Futures Trading in cotton, one version of the cotton trade is that unless Pakistan produces cotton surplus to its requirements, to the extent of 25 percent, restoration of Futures Trading in cotton would not be helpful, while the other group is of the opinion that restoration of Futures Trading in cotton would ensure smooth supply of cotton to buyers--spinners--and save the operators against high risk of price fluctuations and would discourage the system of procurement of lint cotton by spinners on credit.
Some three years back, Futures Trading in cotton was restored in Mumbai (India ) under East India Cotton Association, Mumbai, but the system is not operating as was desired.
The volume of business is reported quite low despite many facilities to the operators. India, like Pakistan, is not even self-sufficient in cotton and both countries rely on import of cotton to meet their domestic requirements.
However, the Government of Pakistan should convene a broad-based meeting of all cotton stakeholders and discuss all pros and cons of the matter commercially and technically before taking any final decision in the best interests of cotton trade and cotton economy and not in the interest of some groups.
Lint prices in local market have remained under selling pressure due primarily due to better prospects of cotton crop and larger booking of foreign cotton at comparatively lower rates.
The KCA reduced its spot price by Rs 75 to Rs 3,175 per mound of 37.324 kg ex-gin on last week-end.
Due to low buying interest, lifting of cotton bales during the week has been poor which would be reflected in the higher inventory of cotton stocks with the ginners.
Taking advantage of the comparatively low cotton prices, Pakistan's spinners are booking good amounts of cotton from US, and Pakistan now stands seventh among top buyers of US Upland cotton and first top buyer of US Pima cotton this season.
According to latest US cotton estimates, Pakistan may import about 1.9 million 480-lb bales to meet its domestic requirements of 9.6 million 480-lb bales against its local production of 7.60 million 480-lb bales. But it appears to be on higher side and total imports in this season may be between 1.2 and 1.3 million 480-lb bales.
The New York Futures continued to decrease more strongly during last week. The retiring March contract shed 2.72 cents, May 3.19 cents and July 3.04 cents to settle at 66.35, 68.18 and 69.31 cents a pound, respectively.
New York Market has lost about 18 cents from end October to February 14, in about three-and-a-half months period.
The re-appearance of China in world cotton market by buying handsome amounts of US cotton (363,200 running bales) in the week ended on February 5, could not lend support to falling cotton prices.
US made aggressive export sales of 703,100 running bales during the week ending on February 5. US export sales have now crossed the mark of 10.0 million bales against export target of 13.2 million bales.
DETAILS ARE AS UNDER:
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(Figures in Million bales of 480-lb)
Upland Pima Total
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Export Sales 10.377 0.423 10.800
Shipments 5.232 0.366 5.598
Percentage 50.42 86.52 51.83
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Cotton Balance-Sheet 2003-2004 Season
(Million 480-lb bales)
World China USA India Pakistan CIS Brazil
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Beg: Stock 36.77 8.08 5.38 3.34 2.26 1.65 3.03
Production 92.65 22.40 18.22 12.70 7.60 6.76 5.20
Imports 32.37 7.00 0.05 1.00 1.90 0.01 0.30
Mill-use 97.24 30.50 6.20 13.20 9.60 1.90 3.70
Exports 32.02 0.20 13.20 0.40 0.05 4.97 1.65
End Stock 32.53 6.78 4.25 3.44 2.11 1.55 3.18
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