INDIA Cotton and Products Update
Posted : August 19, 2019

Report Highlights:

Post estimates marketing year (MY) 2019/20 cotton production at 29 million 480 lb. bales (37.1 million 170-kilogram bales/6.3 MMT) with a planting area of 12.5 million hectares. Planted area for Kharif 2019 season in Central India is five percent higher than last year due to high domestic seed cotton prices and delayed monsoon rains that limited alternate crop planting options. MY 2019/20 mill consumption is lowered due to weak global demand, which is carried over from the current 2018/19 season. While export prospects have diminished, imports are expected to remain stable as they remain price competitive against domestic supplies.

Area and Production:

Post estimates India’s marketing year (MY) 2019/20 cotton production at 29 million 480 lb. bales (37.1 million 170-kilogram bales/6.3 MMT) with a planting area of 12.5 million hectares. Post’s area estimate is 100,000 hectares (0.8 percent) lower than official USDA estimate. Post anticipates marginal reductions in the cotton areas of Central Maharashtra due to a growing shift towards soybeans, and the southern state of Karnataka where cotton is expected to be replaced by pulses (tur) and corn due to state government targets aimed at increasing the production of food crops. Post’s MY 2019/20 production estimate is consistent with the official USDA figure, however Post estimates slightly higher yields at 505 kilograms per hectare.

Planted area for cotton reached 9.6 million hectares as of July 19, four percent higher than last year and five percent higher than five-year average. Recent southwest monsoon rains have encouraged an accelerated pace of sowings across Central India. The cumulative cotton planted area as on July 19, 2019 in Central India (comprised of the states of Gujarat, Maharashtra and Madhya Pradesh) is up by five percent compared to last year. Planting in the northern states of Punjab, Haryana and Rajasthan was completed in early July and the crop area for this region rose by 19 percent compared to last year.

Recent Post travel to Eastern Maharashtra (Vidarbha) region demonstrated a significant increase in the planting of cotton across the region. This growing cotton area is replacing pulses and soybeans. The eastern part of Maharashtra experienced a deficit in rainfall in June, but monsoon rains improved in July which increased planting progress. This delay in rains also prompted farmers to plant more cotton due to its relative drought tolerance. According to the state agriculture department, 50 to 75 percent of cotton sowing has been completed for the state. Planting in Maharashtra state overall is five percent lower than last year due to a growing shift towards soybean plantings in the central part of the state that is greater than the increased planting area in the east.

Arrivals

On July 12, the Cotton Corporation of India (CCI) estimated MY 2018/19 cotton arrivals at 24.3 million 480-lb. bales (31.1 million 170-kilogram bales/5.3 MMT). CCI reported that arrivals represent 92 percent of the total production estimate of the Cotton Advisory Board (CAB). Historically, CCI market arrivals from July to September average around 1 million 480 lb. bales (1.4 million 170-kilogram bales) based on a ten-year average, and around 1.3 million 480 lb. bales (1.7 million 170-kilogram bales) based on the five-year average. FAS anticipates five percent of the remaining crop to arrive in the market by end of the Indian marketing year (Oct/Sep).

2019 Minimum Support Price (MSP) increased by two percent

On July 3, 2019, the government of India announced the increase of the MSP for cotton (medium staple) and cotton (long staple) by Rs. 105 per 100 kilograms and Rs. 100 per 100 kilograms, respectively. The new prices are a two percent increase from 2018 MSP prices. For more details, please refer to PIB Press Release 191129. The higher MSP prices coupled with weak mill demand will likely lead the Cotton Corporation of India (CCI) under the Ministry of Textiles to procure cotton supplies in MY 2019/2020. CCI is currently holding a stock of approximately 742,000 480-lb bales (161,500 MT/950,000 170-kg bales) which remains unsold from MY 2018/19 season.

Consumption:

Post estimates MY 2019/20 cotton consumption at 24.6 million 480 lb. bales (31.5 million 170-kilogram bales/5.4 MMT), 900,000 480 lb. bales lower than USDA’s official estimate. Post anticipates that higher cotton production in MY 2019/20 will ensure ample fiber supplies to cater to both the domestic and export markets, but weak global demand for fiber coupled with strong competition from foreign suppliers will make Indian products less competitive in the global market. Average domestic wholesale seed cotton prices have fallen marginally by three percent from last month. However, Indian ex-gin cotton prices are almost 8-10 cents higher than Cotlook A-Index, prompting mills to augment their requirements with imports. India cotton imports constitute nearly 4-5 percent of total fiber supply. If the differential between domestic and international prices does not decline, the mills will limit their purchases of local supplies and rely increasingly on imports. High domestic cotton prices will force mills to look at altering the poly-cotton blends as polyester prices have been declining.
Trade: Post estimates MY 2019/20 exports at 4.3 million 480-lb bales (5.5 million 170-kilogram bales/936,000 MT). While the prospects of a larger crop should result in greater export outflows, Indian cotton prices are currently uncompetitive in the global market compared to other suppliers. Monthly export shipments have fallen significantly in June 2019 with Bangladesh being the sold dominant buyer. High domestic cotton fiber prices will also result in higher costs for the textile sector which is already experiencing thin margins. In MY 2018/19, cotton yarn exports (by volume) are two percent lower as compared to previous year. Exports in April were lower by 24 percent than previous month. Similarly, in MY 2018/19, cotton fabric exports (by volume) are higher by fourteen percent from last year. Post estimates MY 2019/20 imports at 1.3 million 480 lb. bales (1.7 million 170-kilogram bales / 283,000 MT), 100,000 480 lb. bales lower than USDA’s official estimate. MY 2018/19 imports are revised higher to 1.6 million 480 lb. bales (2 million 170-kilogram bales/ 348,000 MT). Shipments from the United States and Egypt continue to drive up bulk import volumes. Imports are expected to continue to remain firm as higher domestic prices prompt mills to source cotton from foreign origins with more competitive prices
Policy: Indian government focused on improving cotton quality Traditionally, Indian cotton has been sold at discounted rates in international markets due to the high level of foreign matter and contamination. However, the Government of India (GOI) and various state governments are initiating programs to improve cotton quality. One of the initiatives for better quality management includes the introduction of a cotton bale tagging regulation. The Ministry of Textiles proposed a Draft Cotton Bales (Quality Control) Order in July 2018 for comments. This order is expected to be finalized later this year. As per the draft order, all Indian cotton bales will be required to bear a Standard Mark under a license from Bureau of Indian Standards (BIS). For more details please refer IN8097.

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