Cotton output this Kharif season is expected to be marginally higher at 32 million bales (1 bale=170 kg) than last year’s 31.5 million bales, a survey conducted by Business Standard found.
In terms of production growth rate, therefore, it has fallen considerably from 12.5 per cent last year (in 2006-07, the country had produced 28 million bales). Despite low acreage, cotton yield is expected to be on the upside, thanks to increased area under Bt-cotton.
Inadequate rainfall in the initial sowing period, especially in the central part of the country, led to a 5 per cent decline in acreage from 9.55 million hectares to 9 million hectares. Experts said the average country-wide yield would rise by 6-7 per cent to 590-600 kg per hectare from 560 kg per hectare in 2007-08. This would help making up for losses incurred otherwise. Bt-cotton has covered around 80 per cent of the area under the crop for the current season, up 13 per cent against last year.
Highly placed officials in the Ministry of Textiles said, “Crop size will be more or less the same as last year”. Sources in the Cotton Corporation of India said that output would be around 32 million bales this season.
Though the government has increased the Minimum Support Price (MSP) of cotton by over 40 per cent, cotton prices have tumbled over the past few weeks. The market is expected to remain weak in the first 4-6 months of the cotton year (Oct-Sept) due to poor demand in the global as well as the domestic market.
Consumption
Cotton consumption by the textile industry is expected to reduce due to severe power cuts in various states and falling demand of cotton textile products in the international markets. Sunil Khandelwal, chief financial officer, Alok Industries, said, “We foresee a decline of over 2 per cent in cotton consumption.” In the last cotton season, the country saw a consumption of 24.1 million bales.
On the export front too, there will be a slowdown. “China, one of the largest importers of Indian cotton, has so far not evinced interest in importing from India,” R K Dalmia, president, Century Textiles and Industries, said.
Overall cotton exports in 2008-09 are expected to be around 7 million bales compared to 10 million bales last year.
| BETTER BUT NOT THE BEST Estimates by Cotton Advisory Board as on 16 October ‘08 | ||||||
| Area | Production | Yield | ||||
| State | 2007-08 | 2008-09 | 2007-08 | 2008-09 | 2007-08 | 2008-09 |
| Punjab | 6.41 | 5.6 | 22 | 20 | 583.46 | 607.14 |
| Haryana | 4.83 | 4.18 | 16 | 15 | 563.15 | 610.05 |
| Rajasthan | 3.68 | 2.17 | 9 | 8 | 415.76 | 626.73 |
| North | 14.92 | 11.95 | 47 | 43 | 535.52 | 611.72 |
| Gujarat | 25.16 | 24.17 | 112 | 110 | 756.76 | 773.69 |
| M'rashtra | 31.91 | 31.33 | 62 | 62 | 330.3 | 336.42 |
| MP | 6.62 | 6.43 | 21 | 20 | 539.27 | 528.77 |
| Central | 63.69 | 61.93 | 195 | 192 | 520.49 | 527.05 |
| Andhra | 10.96 | 13.19 | 46 | 58 | 713.5 | 747.54 |
| Karnataka | 3.88 | 3.35 | 8 | 10 | 350.52 | 507.46 |
| Tamil Nadu | 1.3 | 1.2 | 5 | 5 | 653.85 | 708.33 |
| South | 16.14 | 17.74 | 59 | 73 | 621.44 | 699.55 |
| All India | 95.55 | 92.6 | 315 | 322 | 560.44 | 591.14 |
| Note: Area in lakh hectares, production in lakh bales and yield in kg/hectare | ||||||
Price outlook
Cotton prices are expected to decline in the short term of around 4-6 months. Moreover, removal of import duty on cotton has opened up a wide global vista of availability and choice in prices. Since, the global cotton market has tumbled, spinners are more likely to go for imports in case domestic prices are higher.
Currently, Shankar-6 variety of cotton has dipped to Rs 22,000 a candy, which, a few months ago was at Rs 28,000.
Moreover, with consumption on the downside, prices will be affected as 2008-09 is likely to be the sixth consecutive year when the country has seen a rise in cotton production.
“Acute power shortage will affect consumption and hence, the prices,” said J S Kumar, vice president (finance), KPR Mill.
However, K F Jhunjhunwala, former president of Cotton Association of India, is optimistic about firm prices.
“In the short term, prices will be weak, but then it will firm up as the cotton year progresses,” he said.
Minimum support price
Hike in MSP may divert players to imports. Experts said this would have an adverse impact on the textile industry which is already witnessing a slowdown. This would increase the input costs and thereby, the domestic players would lose out to their competitors in the international markets, they said. CCI sources added, “Now that market rates have come below the MSP, we will have to bear the burden.”
(This is the first in a two-part series. The second report on oilseeds will appear on Friday)
