The Pakistan Cotton Ginners' Association (PCGA) released its periodical cotton arrivals and consumption report on December 4. As expected, total cotton arrival figures have been reported at 10.09 million (local) bales up to December 1. Of these, mills purchased 6.99 million bales, Trading Corporation of Pakistan (TCP) 0.617 million bales and exporters 0.271 million bales.
A comparison with last year's figures is given below (in million local bales):
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1-12-04 1-12-03 Difference %
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Arrivals 10.089 6.589 (+) 53.119
Sold to Mills 6.993 4.743 (+) 47.438
Sold to TCP 0.616 NIL -
Sold to Exporters 0.271 0.137 (+) 97.810
Total sold 7.880 4.880 (+) 61.475
Total unsold 2.208 1.706 (+) 29.425
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Now, it appears quite safe to place the crop estimates at around 13.0 million 170-kg bales. Total cotton consumption may be around 13.5 million bales, taking into account the low cotton prices against high polyester prices.
Local mills are expected to import cotton equivalent to 1.2 million local bales, inclusive of Pima cotton, during this season. Hopefully, this season would break the 1991-92 record of highest cotton production of 12.8 million bales. In that season, defunct Cotton Export Corporation of Pakistan (CEC) had procured around 3.0 million bales from the ginners to ensure 'Minimum Support Price' to cotton growers, and I remember that many marketing problems had arisen at that time.
As a matter of fact, when we harvest a poor crop there is not much problem, as the spinners import cotton in larger amounts to meet their increased requirements, but unfortunately serious problems arise when a bumper cotton crop is harvested.
For example, when last year (2003-04 season) cotton prices rocketed to record level of Rs 3,600 per maund, neither the government nor any other body, including Aptma, made any strong protests against this price hike.
The obvious reason was that spinners had their chance of selling yarn at matching prices. If they decided to maintain long position and their judgement proved wrong it was their mistake.
In the other case, cotton prices fall below the Minimum Support Price level when a bumper crop is harvested, and the growers have no option other than selling their produce at the prevailing rate, maybe below the level of Minimum Support Price. Here is also a point that when there is a bumper crop, field yield per hectare increases, resulting in proportionate reduction in cotton production cost which ultimately compensates the loss of lower sale price.
As a matter of fact, every season, the growers are given subsidy, either by the government when the prices are low on bumper cotton production, or by the spinners - buyers--when prices are high on poor crop output. Here, politics works and the government as well as the grower bodies 'come out in sympathy' of the cotton growers and unduly embark on such schemes which actually benefit the middlemen and the government workers / functionaries.
The growers are least benefited and the poor public is unduly burdened in the name of subsidy to growers.
On the game of 1.0 million bales of cotton procurement and disposal in exports, TCP may lose $45 to 50 million, which works out to Pak Rs 20 per head. The whole scheme may be considered as failure as cotton growers do not get the ensured Minimum Support Price of Rs 925 per 40 kg.
In last two seasons, the scheme worked to some extent because the crop was not big. This season, it is a bumper crop, up to plus 13.0 million bales, and TCP is poorly and un-professionally manned, deficiently equipped with necessary infrastructure facilities and is non-seriously and leisurely handling the situation.
The ruling prices are around Rs 1,800 per maund of 37.324 kg ex-gin for Grade III and staple 1-1/32 cotton and TCP is buying at Rs 2,159 per maund thus benefiting the ginners with a handsome profit margin of Rs 359 per maund = Rs 16,155 per bale.
The present situation is that at least seed-cotton of 3.0 to 3.5 million bales is yet to arrive. In the gins, there are 2.2 million bales of unsold cotton with the ginners, while 1.2 million bales of imported cotton would be available to the spinners and the spinners have already procured about 7.0 million bales. In a couple of days, TCP's cotton stocks may touch the level of 1.0 million bales which may exhaust its storage facilities.
The analysis of these figures points towards a critical situation which may come up as a result of deadlock in the system. The government is also expecting such a situation. On December 7 and 9, the government is holding meetings of cotton stakeholders--one ministerial meeting and the other of Task Force.
The agenda is said to review TCP cotton operations, take necessary measures to stabilise cotton prices and take decision about disposal of TCP's cotton stocks. The committee of five members viz: Chairman TCP, Chairman Karachi Cotton Association, Chairman Pakistan Cotton Ginners' Association, Chairman All Pakistan Textile Mills' Association and growers representatives which was formed in the last meeting would discuss matters and take necessary decisions. Here, TCP, cotton growers and ginners have the common interest and would support the continuation of cotton procurement by TCP and would favour the export sale of TCP cotton stocks expeditiously through international tenders so that TCP may procure more and more cotton to counter the selling pressure on cotton.
However, All Pakistan Textile Mills' Association representing the interests of spinners would favour discontinuation of TCP's procurement programme and for keeping the TCP's cotton stocks of 1.0 million bales as buffer stocks for local sale to local spinners at a later stage.
The KCA may have sympathies with the first group. Although, the Government policy to ensure payment of Minimum Support Price of Rs 925 to cotton growers has failed but there appears no alternative to this policy at this stage. Any distortion in the present Government cotton policy, either by reduction in cotton lint prices or by discontinuation of TCP procurement programme, would have serious repercussions on cotton trade, and the interests of growers would be largely jeopardised.
New York cotton futures market is still groping in the dark, looking for direction. The bulls and bears are fighting hard to get control of the market. The ground realities are favouring the bears but Government policies and marketing tricks are favouring the bulls.
The whole trade is watching the duel and mostly wish for the success of bears. US has committed in export some 7,261,200 bales, down by about 1.0 million bales same time last year, but shipments are only at 2,188,100 bales ie 30.13 percent. US is producing record high crop of 22.545 million bales, and would consume some 6.42 million bales this season.
Lint yield per hectare is expected around 818 kg, against 5-year average of 667 kg. US had ginned over 12.0 million bales by the middle of November, and about 72 percent of crop has been harvested. On close of the week ending November 25, mill delivered price was 53.09 cents /lb for Middle 35 and 49.31 cents /lb for Strict Low Middling (SLM) 34, while Spot prices were 47.29 cents and 42.71 cents respectively.
As cotton prices are well below production cost, around 55.0 cents /lb, the growers are putting their cotton in loan with US Government, and total cotton put under loan is 5.659 million running bales (1.242 million bales under Form A and 4.417 million bales under Form G) by November 3.
This situation has created demand for ready cotton as the US merchants have to meet their shipment schedule. So these merchants are covering their nearby shipment requirements from other cotton surplus countries, like Pakistan, Brazil, CIS, South African countries etc which are likely to be shipped mostly to China. Crop is late in CIS countries.
Indian crop has just started moving. India is producing record high crop of 21.3 million 170-kg bales this season as per Cotton Advisory Board's meeting on November 27.
Against last year's total production of 17.7 million bales, India may achieve the best yield of 404 kg per hectare this season. Below is the table giving details of area sown to cotton, production and yield this season on zone and state basis.
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India's Cotton Production Estimates (2004-05)
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Zone/State Area sown Production Yield
(M hectares) (M 375-lb bales) (Kg /hectare)
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Punjab 0.549 1.50 464
Haryana 0.626 1.65 448
Rajasthan 0.300 0.80 459
Total North Zone 1.475 3.95 455
Gujarat 1.995 5.50 469
Maharashtra 3.040 4.00 224
Madhya Pradesh 0.586 1.90 551
Total Central Zone 5.621 11.40 345
Andhra Pradesh 1.141 3.30 492
Karnataka 0.553 0.80 246
Tamil Nadu 0.125 0.50 680
Total South Zone 1.819 4.60 430
Others 0.054 0.10 315
Loose Cotton - 1.25 -
Total India 8.969 21.30 404
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