Strengthening of the rupee against the dollar also hits shipments.
The cotton market has seen exporters slowing their purchases as international prices have fallen more than Indian prices.
A total of 600,000-800,000 bales have been registered for exports in January. “Of the 4.8 million bales registered by exporters so far this season, 4.2-4.3 million were registered between October and December,” said Arun Dalal, owner of Arun Dalal & Co, an Ahmedabad-based cotton trader.
Traders estimate that just 2.2 million bales have been shipped to date. Industry observers say the reason is the higher cost of domestic cotton. Cotton futures in the US had touched 77-78 cents per pound before plummeting recently.
The July contract at the New York Cotton Exchange fell to 73.46 cents on Saturday, while March and May contracts were quoted one cent lower than the July futures.
Domestically, prices of the Shankar-6 variety have dropped from Rs 27,000 per candy to 26,500 per candy, roughly 75 cents per pound.
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“Internationally, cotton prices have dipped five cents, while Indian cotton prices have come down by three cents. Given the disparity, no exporter wants to book Indian cotton at this price. As a result, the number of cotton registrations has declined,” said Kishor Shah of the Central Gujarat Cotton Dealers Association.
Strengthening of the rupee against the dollar is another factor affecting trade in India. However, traders says this is a lesser factor than the former.
Out of 15.5 million bales that had arrived, nine million were procured by domestic textile mills, 2.15 million bales were shipped abroad and 438,000 bales were purchased by Cotton Corporation of India (CCI). The remaining 3.5 million bales are unsold.
A few months ago, domestic textile mills were on a buying spree in the wake of a substantial rise in cotton yarn prices and good domestic demand from the textile industry. Cotton consumption of domestic mills is estimated to rise to 25.5-26 million bales this cotton year (October-September) as against 24 million bales last season.
CCI, the nodal government agency for cotton procurement, has purchased barely 5 per cent of what it had procured last year.
It had procured a record 8.94 million bales in 2008-09 at the minimum support price. Farmers are already getting more than the MSP and so they are selling cotton in the open market.
“CCI has about 50 per cent of the stock left from last year’s procurement,” said PK Agrawal, general manager, while explaining lower procurement this year.
Despite the fall, experts say prices will largely remain firm this cotton year, mostly due to improved demand from China.
The shrinking cotton output in major growing countries, except India, is likely to push world cotton production down 4.4 per cent to 102.72 million bales in 2009-10. “We expect lower end-season stocks this year, which will further fuel prices,” said a cotton expert.