In the international market, index funds rolled over their positions from the front-month contract, precipitating a pullback from a more than two-year peak. Alongside the simple reopening process, the strength of fiscal and monetary stimulus has been credited with pulling the US economy to record quarter-over-quarter growth in the third quarter. Later in the year, as more vaccines are given, expectations are that growth will accelerate, which shall increase the demand of this fibre crop. Back at home, a 10 per cent import duty has been imposed on cotton imports in the Union Budget. On the contrary, basic customs duty on man-made fibers (MMF) such as caprolactam, nylon chips and nylon fibre and yarn were cut to five per cent from 7.5 per cent in the budget.
Cotton Futures contracts (Feb 26 expiry) were trading at Rs21,500/bale (1bale=170kg) on February 15, 2021, while March 31 expiry contracts were at Rs21,770 and April 30 expiry contracts were hovering at Rs22,060 per bale. In days to come, the uptrend in cotton futures on MCX is expected to remain intact owing to bullishness prevailing in the ICE cotton futures. Hence, any dip around Rs21,100-21,000, can be taken as an opportunity, eyeing a target of Rs22,500.
In the domestic market, prices are getting support from the ongoing procurement. As per data from Union Ministry of Agriculture, the procurement operations of seed cotton (Kapas) under MSP are going on smoothly in the States of Punjab, Haryana, Rajasthan, Madhya Pradesh, Maharashtra, Gujarat, Telangana, Andhra Pradesh, Odisha and Karnataka. Till February 03, 2021, a quantity of 90,39,092 cotton bales valuing Rs26,432.54crore has been procured benefitting 18,67,429 farmers.
Investors are banking on a bullish supply-demand outlook from the US Department of Agriculture (USDA) on Feb 9. Investors were also keeping close watch for developments on the US fiscal stimulus measures. The US Senate on early Friday passed a Budget plan that would allow for passage of President Joe Biden's $1.9 trillion Covid-19 relief package in coming weeks without Republican support. The International Cotton Advisory Committee (ICAC) has projected 2020-21 world aggregate production at mere 110.16million bales, with most reductions expected in major cotton spinning nations. The demand seems to be steady as its weekly export sales report, the US Department of Agriculture (USDA) showed that net sales of 286,700 running bales (RB) for 2020-21 were down 11 per cent from the previous week, however, sales increased for China at 85,400 RB. The report showed that exports of 319,000 RB were up 16 per cent from the previous week, of which 106,500 RB were shipped to China.
The Cotton Association of India (CAI) has retained its consumption estimate for the current crop year at the same level as estimated in the last month i.e. 330 lakh bales. The consumption for the previous season was estimated at 250 lakh bales due to the disruptions caused on account of Covid-19 pandemic. The consumption is now expected to reach the pre-lockdown level of 330 lakh bales during the 2020-21 Season. Upto January 31, 2021, the consumption is estimated at 110 lakh bales of 170 kg each (equivalent to 116.88 lakh running bales of 160 kgs each).
The CAI has maintained its cotton production estimate for the season 2020-21 at the same level as estimated previously i.e. at 360 lakh bales of 170 kgs each (equivalent to 382.50 lakh running bales of 160 kgs each. The crop estimated now for 2020-21 season is at the same level as estimated for the previous year.
The estimate of the cotton imports into India has been maintained by the CAI at the same level as estimated in the previous month i.e. at 14 lakh bales of 170 kgs each (equivalent to 14.88 lakh running bales of 160 kgs each), which are less by 1.50 lakh bales of 170 kgs each from 15.50 lakh 5 bales of 170 kgs each estimated for the 2019-20 crop year. Upto January 31, 2021, about 6 lakh cotton bales of 170 kgs each are estimated to have arrived the Indian Ports.
The CAI has estimated the cotton exports for the 2020-21 season at 54 lakh bales of 170 kgs each (57.38 lakh running bales of 160 kgs each) against the previous year’s export estimate of 50 lakh bales of 170 kgs each (53.13 lakh running bales of 160 kgs. each) Upto January 31, 2021, 29 lakh bales of 170 kgs each (30.81 lakh running bales of 160 kgs each) are estimated to have been shipped.
Indian cotton arrivals during the months of October 2020 to January 2021 are estimated at 255.25 lakh bales of 170 kgs each which are equivalent to 271.20 lakh running bales of 160 kgs each.
The cotton stocks held by mills at their godowns on January 31, 2021, are estimated at 75 lakh bales (equivalent to 79.69 lakh running bales of 160 kgs each). The mills have on an average about 82 days’ cotton stock in their godowns. The CCI, Maharashtra Federation, MNCs, Ginners, Traders. MCX, etc., estimated to have the total stock of about 172.25 lakh bales of 170 kgs each as on January 31, 2021, which is equal to about 183.02 lakh running bales of 160 kgs each. Thus, the total stock held by spinning mills and stockists on January 31, 2021, is estimated at 247.25 lakh bales of 170 kgs each which is equal to about 262.70 lakh running bales of 160 kgs each.
The closing stock as on September 31, 2020, is estimated by the Committee at 115 lakh bales of 170 kgs each and it's equivalent to about 122.19 lakh running bales of 160 kgs each.
The writer is a senior research analyst (agri commodities) at SMC Global Securities Ltd