Cotton and Products Update
Post estimates marketing year 2019/20 cotton production at 29 million 480 lb. bales with a planting area of 12.7 million hectares
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 12.7 million hectares. MY 2019/20 mill consumption remains weak as mills accumulate greater cotton yarn stocks due to poor demand. Export prospects have diminished while imports are expected to remain stable as they are price competitive against domestic supplies.
Post estimates India’s marketing year (MY) 2019/20 cotton planted area at 12.7 million hectares, 100,000 hectares (0.8 percent) higher than the official USDA estimate. According to the weekly planting progress report published by the Ministry of Agriculture and Farmers Welfare (MOAFW), cotton planted area across the country has reached 12.2 million hectares, six percent higher than same time last year, and eight percent higher than the five-year average. Planting in Central India (Gujarat, Maharashtra and Madhya Pradesh) is three percent higher than last year, while Northern India (Punjab, Haryana and Rajasthan) saw a 19 percent increase in cotton area. Various initiatives of the state governments of Punjab and Haryana to limit planting of paddy rice due to its elevated water requirement has led to increased cotton area. Planting is underway in Southern India (Andhra Pradesh, Telangana, Karnataka and Tamil Nadu) where sowing progress is five percent higher than last year and is expected to remain high due to high cotton prices. Farmer planting decisions are primarily driven by their expected price realization. As such, high farm-gate cotton prices, and higher minimum support prices will encourage higher cotton crop area.
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). Post’s MY 2019/20 production estimate is consistent with the official USDA figure, however Post estimates slightly lower yields at 497 kilograms per hectare. Recent Post travel to the Vijayawada and Guntur districts of the southern state of Andhra Pradesh indicates higher cotton planting than last year, but the delay in rains is likely to impact crop development and lead to lower yields compared to last year.
On August 19, 2019, the Ministry of Agriculture and Farmers Welfare (MOAFW) released the fourth advance estimates of production of major crops for MY 2018/19. Their cotton production estimate for MY 2018/19 is 22.4 million 480-lb bales (28.7 million 170-kilogram bales/ 4.9 MMT), which is 17 percent lower than official Cotton Advisory Board (CAB) provisional estimate of 26.3 million 480-lb bales (33.7 million 170-kilogram bales/5.7 MMT) published on
June 18, 2019.
Post estimates MY 2019/20 cotton consumption at 24.6 million 480-lb. bales (31.5 million 170-kilogram bales/ 5.4 MMT), 400,000 480-lb. bales lower than official USDA estimate. According to the production estimates published by the Textile Commissioners Office (TCO), cotton yarn production has increased by six percent between April – June 2019 as compared to the same period last year. At the same time, blended and 100 percent non-cotton yarn production has increased by 18 percent, while cloth production by the mill sector has fallen by ten percent. The slowdown in the spinning sector is evident from a large number of mills curtailing their operations and accumulating more yarn stocks. The fall in yarn prices due to weak domestic demand, lackluster export market coupled with high alternative fiber prices is negatively affecting the profitability of many small to medium-sized mills. Average domestic wholesale cotton prices have fallen marginally by less than one percent from last month but remain five percent higher than last year. Indian ex-gin cotton prices are almost 5-6 cents higher than Cotlook A-Index, prompting mills to augment their requirements with imports.
Post estimates MY 2019/20 exports at 4.2 million 480-lb bales (5.4 million 170-kilogram bales/914,000 MT) same as the official USDA estimate. Indian cotton prices remain almost 5-6 cents higher than Cotlook A-Index. The differential between domestic and international prices has narrowed in the past one month as global demand has also weakened due to slowdown in major cotton consumption countries. The Indian currency has also depreciated by four percent since beginning of August improving export prospects, nonetheless weakened demand is limiting this export opportunity. Shipments to Pakistan may also fall further. Bulk exports in June were limited to Bangladesh, Vietnam, Iran and Taiwan
According to the export data published by the Ministry of Commerce, cotton yarn exports by quantity in MY 2018/19 from August up to June are ten percent lower than last year. Exports in June were down 23 percent from previous month. Domestic yarn prices have also fallen by six percent from June onwards highlighting the weakness in demand. Similarly, most of the cotton yarn exports in June were to China, Bangladesh, Peru and Egypt.
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. Shipments from the United States and Egypt continue to drive up bulk import volumes. Almost 44 percent of total quantity of imports in June were from the United States, followed by Egypt. Imports are expected to continue to remain firm as higher domestic prices prompt mills to source cotton from foreign origins with more competitive prices.
The beginning stock for MY 2019/20 is estimated at 9.7 million 480 lb. bales (12.5 million 170 kg bales/2.1 MMT). This stock level adjusted for the Indian marketing year (Oct/Sep) is roughly equivalent to 5.9 million 480 lb. bales (7.6 million 170 kg bales/1 MMT). These stock levels also include the stocks held by government agencies such as the Cotton Corporation of India (CCI).
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 reports that arrivals represent 92 percent of the total production estimate of the Cotton Advisory Board (CAB). Trades sources indicate that arrivals up to July end were around 24.6 million 480-lb. bales (31.5 million 170-kilogram bales/ 5.4 MMT). Historically, CCI market arrivals from August to September average around 406,000 480 lb. bales (520,000 170-kilogram bales) based on a ten-year average, and around 460,000 480 lb. bales (589,000 170-kilogram bales) based on the five-year average. FAS anticipates two percent of the remaining crop to arrive in the market by end of the Indian marketing year (Oct/Sep).