Final cotton production figures of this season have been placed at 14.37 million running bales. New crop planting is progressing well in Lower Sindh under conducive weather conditions, supply of adequate irrigation water, availability of inputs such as seed, fertiliser, insecticides etc. Last week, Hyderabad and Sanghar districts received moderate rains, which were said to be cotton-friendly. Growers appear quite enthusiastic about cotton sowing and it is hoped that area under cotton crop in 2005-06 would be not less than that of 2004-05 season.
The government has already fixed a high target of 15.0 million bales of 170 kg each ex-farm for next season. The Karachi Cotton Association is busy doing homework to re-start futures trading in cotton through Hedge Market, from the new crop. However, announcement for opening contracts may be made next month.
Reports from early sowing areas indicate that the new crop may academically commence from July, and ginning operation in Mirpur Khas area may start in the middle of July. It is worth mentioning that our marketing system has worn out and immediately requires drastic change. Thus, the restoration of Cotton Hedge Market would improve cotton marketing to the benefits of all cotton stakeholders.
Now, days are gone when buyers and sellers used to gather at a place for marketing, and in future the markets would operate on computers and complete transparency and bargains recording would be done. In top three cotton producing countries, Hedge Market is already operating - two exchanges in China, one each in USA and India - and top fourth is Pakistan where preparations are underway. Brazil - a very prominent cotton producing country - has started its Cotton Exchange from April 13.
To achieve the benefits of globalisation, cotton hedge marketing should be accessible on internet globally. For making this system of marketing successful, cotton grading and standardisation system should be enforced in all ginning factories to enhance regularity and homogeneity in grade and staple length of lint cotton.
The Trading Corporation of Pakistan ( TCP ) opened its tender for sale of 60,000 bales cotton on April 23. The response from the international merchants was poor as only six companies showed interest for purchase of 5,000 bales each, and the best bid was 46.07 cents/lb FOB Karachi. On FOB Karachi basis, cotton costs 50.18 cents/lb (Initial purchase price Rs 2,159+Rs 150 carrying charges for five months + Rs 150 as FOB Karachi expenses = Rs 2,459/maund ex-gin = 50.18 cents/lb).
Thus, TCP received the best bid of 46.07 against its break-even cost of 50.18 cents - loss is 4.11 cents /lb. However, reportedly 43 local mills participated in the tender and the best bid of Rs 2,310 per maund of 37.324 kg ex-TCP warehouse was given by Star Textile Mills at Karachi for 1,500 bales whereas it cost TCP Rs 2,339 per maund ex-gin. (Initial purchase price of Rs 2,159 per maund ex-gin + Rs 30 as Transportation charges up to TCP Karachi Store + Rs 150 as carrying charges for 5 months = Rs 2,339 per maund ex-TCP warehouse) - loss Rs 2,339 - 2,310 = Rs 29 per maund.
Will TCP accept the highest bid of Rs 2,310 and sell 1500 bales to Star Textile Mills or ask other bidders to match their bids with the best one ? As the best bid of 36.07 cents/lb FOB Karachi is very low as compared to the best local sale bid so there appears no chance of accepting the best export bid.
How the TCP's Price Evaluation Committee would decide about the fate of bids will be known on April 25. The TCP should keep the best price open for one week so as to sell maximum quantity of cotton.
The pattern of bidding by local spinners shows that they are not eager buyers. The international merchants are already holding long positions and do not want to add to it at market price. The weak yarn prices are discouraging the spinners from paying higher prices.
The Open-End mills mostly remain regular buyers but the high level of prices does not suit them. As such, they are out of the tender game. The international prices are likely to go down by 3/4 cents in the coming weeks in view of higher long position on hedge market. China is resisting bulk buying.
Some reports indicate that China may harvest even a larger bumper crop of 31/32 million bales, instead of 29 million bales as was estimated earlier. This would reduce the gap between demand and supply position in China. China wants high grade cotton so it is booking cotton from Australia, South Africa and CIS countries instead from US where high grade cotton is quite scare.
Fire had broken out in TCP warehouse in Akramabad (Rahimyar Khan) about a week back - on April 15 - and some 22,000 bales were lost/damaged out of 42,600 bales. Again, on April 23, fire broke out in the same warehouse where reportedly some more than 10,000 bales were lost or damaged. Why the safe and sound bales were not shifted to a safer place soon after the first fire? Why the damaged bales were not segregated to avoid any fire later?
Some reports indicate that the situation was mishandled and at least the element of negligence cannot be ignored. Some reports say that poor quality cotton was stored there. Reportedly, some 13,000 bales were classed as Grade II, out of 43,000 bales - percentage is 30 percent. Perhaps, out of all other 1.5 million bales, 13,000 bales have not been classed as Grade II.
In Karachi, where there are some more than 1.2 million bales, less than 2000 bales have been classed in Grade II. Almost all upcountry warehouse were acquired and cotton bales were stored there when storage capacity of more than 1.3 million bales in Karachi was exhausted and this situation came after January/February. Generally, fire first breaks out in stocks bordering or close to living area/houses and thoroughfares but this fire broke out from the centre of the warehouse.
As such, prime/better quality cotton from Rahimyar Khan area was stored in Karachi and comparatively lower quality which was delivered late in February and onward perhaps was stored in warehouse in Akramabad. Were all necessary insurance warranties and requirements completed in respect of cotton storage or not ? The whole matter requires independent inquiry--in the matters of lower quality cotton, negligence in handling the fire situation and cause of fire.
In New York Cotton Exchange, prices firmed up in the last week and May contract finished at 56.15 cents while July contract closed at 54.12 cents a pound. As the trade as well as the specs are holding long position and China is keeping silent on bulk buying so a correction of 4-5 cents may take place in next week.
Yarn prices are not picking up. US has made export sales of 12,214,500 bales inclusive of 757,400 bales of US Pima cotton. Total shipments were at 8,293,000 bales inclusive of 726,800 of US Pima. Main buyers of US cotton are: (Figures in million bales) China 2.135, Mexico 1.769, Turkey 1.759, Indonesia 1.143, Thailand 0.770, Pakistan 0.699 (inclusive of 185,000 bales of Pima), Korea Republic 0.686, Taiwan 0.553, Canada 0.429 and Japan 0.390 million bales.
According to latest US report, world cotton production for next season has been estimated at 103.0 million bales, down 16.2 million bales from this season, while mill-use has been estimated at 109.0 million bales, up 1.9 million bales from this season. Weather and sowing intentions are indicating better crop next season.
The larger Ending Stocks of this season at 47.8 million bales, some 12.5 million bales more than last season, are likely to hold the rising trend in prices next season.