Latest national cotton arrival and disposal figures through 1st. December, 10 mention total arrivals as 8.357 million local weight bales against 10.428 million bales same period last season - shortfall being 2.070 million bales = 19.86 percent; Sindh short by 0.555 million bales (15.20 percent) and Punjab short by 1.516 million bales (22.36 percent).
Arrivals in last fortnight of November month was lower at 0.904 million bales for which there are good reasons viz: there were Eid holidays which disturbed picking and delivery process, lack of transport facilities, holding of seed-cotton stocks on drastic fall of cotton prices.
On the basis of 20 percent shortage from last season, the size of cotton crop comes around 10.25 million local weight bales but still many people think crop size between 10.5 and 11.0 million bales. It should also be kept in mind that average weight of our bales is estimated around Kgs 160 instead of standard weight of Kg 170 a bale short by 6 percent.
After taking stock of the field reports, this Analyst still considers crop size between 10.5 and 11.0 million bales. However, in next couple of fortnights crop size would become more concise and accurate. One cotton professional said that he expected total arrivals equivalent to over 10.0 million bales by the end of December month. He still maintains that crop size may run between 11.0 and 11.5 million bales.
Our domestic cotton consumption, which was initially estimated around 15.0 million bales may not prove true. Abnormally high cotton prices, shortage of cotton, increasing cost of production, acute power / gas shortage, poor law and order situation, poor off-take, and instability in politics may reduce cotton-use in the country around 13.5 - 14.0 million bales. We have already committed export sales around 0.4 million bales and by the end of the season, our total export sales may be around 0.8 million bales. To meet the shortage of domestic cotton requirements, we would have to import not less than 3.5 million bales (170-Kgs each).
The spinners are still working on hand to mouth position in cotton use. The spinners are quite hesitant in committing long-term export sales of yarn in view of wide fluctuations in cotton prices. The spinners do not favour the idea of keeping cotton inventories sufficiently fat to meet their long-term requirements.
Lint cotton prices in domestic market has been highly volatile strictly following the price trend of New York Cotton Future Market which touched ever high of Cents 157.0/lb on 10th November and decreased by over 28 percent to 112 in next fortnight and then jumped to 126.34 level (March contract) to close on Friday the 3rd December. Lint prices in Pakistan market touched highest of the history at Rs 11,000 per maund of 37.324 Kg ex-gin (Second week of November) and the decreased to Rs 8,000 in last week but again rallied to Rs 10,000 on last Friday last week but against lost Rs 400-500 to close around Rs 9,500 on Saturday (4th December) on reports of poor buying interest from spinner buyers. Local business conditions are not supporting high cotton prices but international factors are enough strong. If domestic cotton prices decrease on local factors while prices stand firm and strong on New York market then exporters specially the international merchants can enter in to our cotton market and commit in export in bulk to China.
If the domestic cotton prices go up beyond international level then domestic spinners would opt for import of cotton. Thus, there appears no option for domestic cotton prices but to follow the international prices. Almost the world over, spinning mills are not accumulating cotton stocks for long-term use due to very wide and uncertain fluctuations in cotton prices. US has committed in export some 85 percent (13.5 million bales) of its saleable cotton and is left with unsold stock of only 2.5 million bales which may be committed before start of next season.
However, US is lacking in cotton shipments which are only 2.8 million bales (20.54 percent of export sales). It means US would have no cotton for sale from current crop next year after this calendar year. Main cotton importers like China, Bangladesh, Pakistan and Indonesia will have to look for cotton aggressively in the rest of the running season from India, CIS, Australia and Africa. The highly volatile cotton market would force the spinner-buyers to work on hand to mouth basis almost whole season, look for some alternate fibres and try to reduce financial cost by not keeping larger cotton inventories for longer period. This situation may leave sufficient stocks of unsold cotton with cotton selling countries like India, CIS, Australia and African countries in the last quarter of this season.
Encouraged by very high and attractive rates of cotton this season, cotton growers in almost all cotton growing countries would try their best to increase cotton area, use potential seed and make all out efforts to increase their cotton production for securing better rates next season. Sowing intentions and cotton production targets from cotton growing countries, which are expected to be very high and impressive, would be available by next June. What is to be mentioned is that signs of slackness in cotton prices may appear on world market and turn into bearish trend after in the last quarter of this season. New cotton arrivals may start by middle of next June in Pakistan and there may not be floods every year so Pakistan may harvest bumper cotton next season.
When US would sell out almost all her exportable surplus of 16.0 million bales almost before start of new year then India will occupy the driving seat in cotton exports sales.
India can easily spare some 7.5 million bales for export this season. So far, India has committed export sales of 5.5 million bales, which are supposed to be shipped by 15th December but domestic logistic and other shipment related arrangements are not enough to ensure entire shipments. There is strong perception that India may hardly ship 2.5 million bales by 15th December and 3.0 million bales would be left unshipped by the cut-date. Rumours are there that India may extend its last shipment date by one month till 15th January, 2011 AD to build up its good image as a good exporter and honour its export commitments. In this position, Indian exporters would realise better export profits. Alternatively, 3.0 million bales remaining unshipped on 15th December would be offered for fresh export sales and in this case Indian cotton may not get price equal to last sales prices. India may face competition in selling cotton from other countries like CIS, Australia, African countries as every country would try their best to sell out all their exportable surplus well before start of new crop in Pakistan.
May be, one might have seen two similar cotton seasons but no one would have seen such an unpredictable and volatile cotton season. Reportedly, one man said to Albert Einstein - a Noble Laureate and a great physicist that in First World War heavy artillery was used, in Second World War airplanes and atom bombs were used what would be used in Third World War. Albert Einstein after some pause said I cannot tell about weapons to be used in Third World War but can predict about Fourth World War and said that Fourth World War will be fought with hands and sticks as almost everything may be destroyed in Third World War. This joke applies to this running cotton season as Third World War and next cotton season as Fourth World War.