Increase in prices causes early import of cotton

This year high domestic prices have forced industry to begin cotton imports early, and already about 3 lakh bales of the commodity have been imported in December. Usually, imports start around April-May when domestic prices start moving up.
 
However, this year as arrival of cotton has dipped post the note-ban  and farmers are not selling cotton in a big way as they prefer to deal in cash, the prices have firmed up to Rs 39,000 per candy of 355 kg in the domestic market.
 
According to Cotton Corporation of India (CCI) data, season’s total arrival during October to December so far has reached 7.5 million bales a drop compared to the 10 million bales in 2015. South Indian mills are importing cotton from West Africa as it is comparatively cheaper than Indian cotton, by almost Rs 6,000-7,000 per candy.
   

According to industry sources cotton prices may not decrease in the near future, as daily arrival is still below expectation. Currently, cotton arrival has registered at 150,000 bales a day, where it should be about 225,000 bales at this time of the season.
 
“Post demonetisation, cotton prices have gone up and against it supply has decreased as farmers are not selling cotton in a big way. Note ban created cash shortage and as most of the farmers prefer to deal in cash, it disturbed the arrival. On the other hand, international prices are ruling lower than domestic cotton prices, this has encouraged the mills to import early this year,” said Shirish Shah of Bhaidas Karsandas Company and member of Cotton Association of India (CAI).
 
After demonetisation, several mandis are not fully operational as arrivals have dwindled. Short arrival at the time of peak season increased the cotton prices to Rs 39,000 per candy. Internationally cotton prices are ruling at Rs 33,500 per candy.
 
“Farmers mostly deal in cash but as there is not sufficient cash in hand after government banned the high value currency notes and restricted cash withdrawal, farmers did not sell their cotton in November. However, arrival has improved in December, but still it is not sufficient to match the demand. Situation may not change in the near future,” said Ritesh Kumar Sahu, research analyst at Angel Broking.
 
Demonetisation has not only impacted the arrival of the commodity in the market, but the export orders of cotton have also taken a toll. With exporters facing difficulties to source products from the markets, non-fulfilment of orders has led to cancellations as well as fall in forward contracts.
 
Chirag Pan, chief executive officer of Jaydeep Cotton Fibres, said, “The cotton sector always deals in cash with farmers. Currently, supply is not sufficient and we are facing trouble to source our requirements. Export is uncertain now. We are not taking new orders as we are not sure of completing committed orders.”