Now, it appears quite possible for Pakistan to set new high production record around 13.5 million local bales this season breaking the 12.8 million bales production record of 1991-92 season. As I mentioned in my previous report, nobody should claim credit for this record cotton production because not only Pakistan but other countries like China, USA, India and Uzbekistan are also going to produce record high cotton crop this season.
This is all due to very good weather globally. Unfortunately, when there is a bumper crop, some sort of crisis develops as we fail to handle it properly. Normally, the growers/ginners sell their cotton to spinners or merchants when prices do not fall below certain level otherwise Government intervenes and buy cotton at fixed Minimum Support Price to support the growers.
In USA, ginning is customary and growers get their seed-cotton ginned and pressed from any ginning factory at fixed charges and sell their lint cotton to Commodity Credit Corporation (CCC) at the fixed rate.
In India, Maharashtra Co-operative Society and Cotton Corporation of India buy seed-cotton from growers at Minimum Support Price, get it ginned in their contracted ginning factories and then sell the lint cotton either locally or in export.
In China, the Government buys seed-cotton from growers at fixed price, get it ginned in its account and put it in reserve. Thus, in China, USA and India, cotton growers are directly benefited from Government's subsidy.
In Pakistan, ginners also operate as traders/merchants, buy seed-cotton from growers and sell lint cotton either locally or in export. In Pakistan, Government through Trading Corporation of Pakistan (TCP) buy lint cotton from the ginners at fixed rate although Government fixes Minimum Support Price (MSP) for seed-cotton but there is no any mechanism to ensure that growers get it.
Thus, the subsidy meant for the growers is shared mostly by ginners and Government functionaries. This season, the Government fixed Minimum Support Price of seed-cotton at Rs 925 per maund of 37.324 kg ex-gin but growers are getting much less than it and the TCP is buying lint cotton from ginners at fixed prices of Rs 2,159 for Grade III staple 1-1/32 inches while in the open market same cotton is selling around Rs 1,800 per maund ie Rs 359 per maund below Government price. Obviously, there is a great scope for corruption and it is there almost at all levels.
Reportedly, about 900,000 bales have been delivered to TCP against total contracts of 1,800,000 bales with the ginners. The TCP failed to enforce its bale packaging and weight standards as laid down in their purchase contract. Poor material packaging is the main cause of bursting of bales/over-sizing of bales resulting loss of more than 15 percent in increased ocean freight.
Instead of 160 bales in Hi-cu container only 130 bales would be cover space. When the bales would be handled at the time of sampling, weighing and loading into containers, more bales would get burst aggravating the situation in stuffing/loading.
Some inside reports indicate that lot of below Grade 3 cotton has been received from different Cotton Procurement Centres, which is roughly estimated more than 25 percent. Since, TCP is paying about Rs 250 to 300 per maund more than market price then TCP should have not compromised on quality rather it should have forced the ginners to deliver at least Grade II cotton.
Reportedly, the local agents of the Hong Kong based international merchant who bought 10,000 bales of Grade III staple 1-1/16 against first tender at average rate of US Cents 41.775/lb FOB Karachi is finding it difficult to approve lots because of lot of variation in Grade.
As to the safety and security of cotton stocks, position in TCP's Pipri warehouse is said to be alarming and any mishap of fire may cause colossal loss to the Government. The concerned Insurance Company should ensure compliance of all insurance warranties and requirements.
The ginners are complaining about undue delay in first payment and say that TCP does not allow their agents or representatives entry to their Account Department for follow-up of their due payments.
Some get payments very soon while others get it very late. Perhaps, no proper diary is maintained for all in-coming bills and their payments. It is also one of the reasons of pressure on cotton prices as due payments of million of rupees are delayed for obvious reasons.
Reportedly, TCP is opening its Cotton Procurement Centre at Sanghar on the instructions of National Assembly Standing Committee on Government Assurances. Almost 90 of cotton crop in Sanghar district has been harvested and only low grade cotton is available there which does not quality for TCP standard. This is perhaps because the member of National Assembly heading the Standing Committee hails from Sanghar.
Previously, branches of Banks/Government organisations/schools were established in such locations without any feasibility only to stamp the authority and power of the members. Of course, Sanghar is a big cotton producing district but never any cotton procurement centre was established there in CEC days.
This is the district station, which has no railway connection. Of course, finding no alternative, the Government has instructed TCP to continue with its cotton procurement operation but TCP should improve its operative conditions and services and take necessary stringent measures for arresting corruption and malpractice.
It is good that TCP has decided to sell its lint cotton in export through international tenders and the second tender for export sale of 25,000 bales of Grade III is due on 18th instant.
Under present market conditions, the trade circles expect the best bid around 39 and TCP is advised to accept the best or matching bids as the market trend appears to be bearish in coming months.
Reportedly, over all quality of lint cotton purchased by TCP this season is not as good as it was in previous seasons although this season TCP paid about Rs 300 per maund more than the market price.
On the announcement of the Government to continue cotton procurement though TCP and also sell it in export, lint prices in local market have appreciated by Rs 75 per maund. Better Grade cotton is selling around Rs 1925 - 2000, average grade around Rs 1850 - 1900 while low grade around 1750 - 1875 per maund.
Availability of low grade cotton is increasing and that of high grade decreasing widening the gap between the two prices. As such, in coming weeks, selling pressure on low grade cotton would increase resulting in reduction in prices.
New York Cotton futures vales almost remained on the same level of last week.
The retiring contract December 4 went off the board on December 7 at 45.59. On the close of the week, now ruling contract March 5, closed at 42.31 marginally up by Cent Points 11 while May 5, contract finished at 42.80 up by Cent points 53. The bottoms of the contracts are inching down slowly and steadily.
The ruling March 5, contract may break the strong psychological barrier of 40 in the next couple of weeks. US made good export sales of 339,300. Running bales in the week ended on 2nd December 04. With this sale, US has made total export commitments of the season at 7,639,300 bales including 439,700 bales of Pima cotton against which shipments of 2,191,600 bales including 184,100 bales has been made ie 28.69 percent.
Main buyers are Mexico 1,523 thousand bales, Turkey 934 thousand bales, Indonesia 809, China 714, Thailand 531, Korea Rep. 516, Canada 403, Pakistan 345, Taiwan 272, Japan 260, Hong Kong 156 and India 127 thousand bales. US trade officials are expected to put temporary ban on import of various textile items from Pakistan and Philippines after China and India.
US released its estimates cotton figures for December on the 10th December.04. World cotton production has increased from 111.73 million bales in November,4 to 114.02 million bales in December.04 up 2.29 million bales (2.05 %). Most of the increase has been seen in US, India and Pakistan's productions.
World cotton consumption increased from 102.90 million bales in November 04 to 103.3 million bales in December 04, up by 0.4 million bales ( 40.389 %). The ending stock has increased from 44.6 million bales in November04 to 46.5 million bales in December 4 up by 1.9 million bales ( 4.26 percent).
The possible bearish impact on international cotton prices due to increase of 2.29 million bales in world production US estimates of December 04, was offset by increased US export sales of 339,300 running bales of the week ended on 2nd. December 04.
The countdown of the end of Quota system has already started and from 1st. January 05, it would be replaced by Quota-free Regime under WTO. Only quota restrictions on the import of textile goods would go off but import and export duties would be there which would be relaxed or removed in future.
The countries largely affected by the new arrangements would get some time to adjust their foreign trade policies according to the changed circumstances. Only then cotton price may find a definite direction.
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Cotton Balance-Sheet of important countries
Crop 2004-2005 (Fig: Mln 480-lb Bales)
Countries End. Stock Production Imports Consumption Exports End. Stock
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World 35.5 114.0 32.3 103.3 32.0 46.5
USA 3.5 22.8 00 6.2 12.5 7.6
China 7.9 29.5 7.8 36.0 0.2 9.0
Pakistan 2.0 10.0 1.3 10.1 0.3 2.9
India 4.1 15.0 0.7 14.3 0.6 4.9
Central
Asia 1.7 7.9 00 2.0 5.4 2.2
Australia 0.9 2.4 00 0.1 1.7 1.5
Brazil 4.6 5.9 0.5 4.0 2.1 4.9
Indonesia 0.4 00 2.3 2.2 00 0.5
Selected
Asia 1.9 0.2 8.5 8.2 0.1 2.3
Mexico 1.1 0.6 1.6 2.0 0.2 1.1
Turkey 1.3 4.3 2.4 6.2 0.3 1.5
USDA-December 2004
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