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Major cotton producers like China, India and Pakistan have started taking actions to support falling cotton prices by market intervention or insulating farmers by offering subsidies as the cash crop has fallen 25-30% across markets. International Cotton Advisory Committee (ICAC), a global cotton industry body, said today that “Given low prices and high production costs, many governments of large cotton-producing countries are taking measures to help growers.”
India, China and Pakistan together produce 60% of the world’s cotton.
Cotton-2 contract, which is traded on global exchanges and is a benchmark for global prices, peaked on May 5 this year and has fallen almost 30% since. It is now trading 59.1% lower while, in India, MCX cotton fell about 23% during the same period.
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China has cut cotton purchases significantly, and recently announced that it would provide a cotton subsidy of 2,000 yuan/ton to growers in nine inland provinces in 2014, ICAC pointed out.
India has a minimum support price (MSP) system that did not go into effect in the last few seasons due to high prices, but prices of kapas (the raw form of cotton) have fallen below MSP in many places, especially in southern India.
The Cotton Corporation of India has been actively buying under a market intervention scheme and has also beefed up storage for which the government has arranged a line of credit. So far, CCI is understood to have procured 2.5 lakh bales (170 kg) of cotton mostly from western and southern India. Even arrivals this season are about half of usual volumes because of a delay in the crop.
In October, the Pakistani government announced a cotton support price of Rs 3,000 per 40 kilograms. The Trading Corporation of Pakistan (TCP), which has not purchased cotton since 2005/06, will buy about one million bales of lint this month at the announced minimum support price.
Cotton production for 2014-15 is forecast at 26.3 million tonnes (MT), according to ICAC data. Of this, India is expected to produce 6.8 MT while Pakistan is estimated to produce 2.1 MT. China’s production is expected to fall 7% 6.5 MT.
Interestingly, cotton consumption, especially by mills, is projected to go up this season. However, in most places, mills are waiting for prices either to fall or stabilize. The situation is the same in India as cotton will be available cheap for some more time and mills are in no hurry to buy now, said an analyst covering cotton with a large commodity broking house.
