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Global cotton rally may spur cultivation

A sudden spurt in cotton futures in international market over the last three days has left cotton traders perplexed in India. While the fundamentals support a possible bearish trend owing to wider sowing of the fibre crop, the recent rally in international markets is encouraging farmers towards further cotton cultivation.

On the Intercontinental Exchange (ICE) in the US, the cotton futures for July 2017 contract rallied by about 12 per cent in just three sessions to hit a high of 85.32 cents per pound on Monday a level not seen in more than two years. This prompted ICE to increase the margin requirements thereby indicating speculators’ play behind the sudden spurt.

On ICE the cotton July futures cooled off a bit to 83.99 cents on Tuesday. This sent out a bullish sentiment in the global cotton markets including India, a key global cotton player. The spot rates on Indian markets rebounded by nearly 1,000 per candy (each of 356 kg) to trade at 42,700 on Tuesday. On the MCX, cotton futures for the immediate month contract quoted at 21,170 per bale after hitting a high of 21,260. In March, cotton futures had quoted at 21,060.

Experts say the rally is artificial and will be short-lived. The intergovernmental group, International Cotton Advisory Committee (ICAC), had projected an increase of about 1 per cent in cotton production globally to 23.1 million tonnes in 2017-18. As per the initial estimates, cotton sowing in India has been estimated to increase by 10-12 per cent, while in some pockets, the cotton area may go up by as much as 20 per cent over last year. The trigger for the sharp surge in cotton area is the higher prices as compared to the other alternate kharif crops, such as paddy and pulses.

International buyers, who were to settle their positions, continued making further positions in cotton futures for some reasons. This led to the spurt in prices. In the Indian context, due to such higher international prices, our imports will shrink more than the estimated. So, the country may feel the shortage of cotton around July and those holding cotton stocks may get 46,000-47,000 per bale. But that would be a very short-term as we expect more acreage this year.