After racing for the past six months, cotton prices have started dipping. With a lackluster demand, spinners, ginners, and exporters are having sleepless nights. But as two sides of a coin, is this; a good sign for the industry in the long run?
Cotton prices are experiencing a falling trend both in the domestic and international markets. Huge inventories, delay in placing orders, and cancellations of existing orders are depressing industry players. Market is anticipating a further decline in the price trends. Cotton prices are in a roller coaster ride. It experienced a peak in the beginning of 2011 at levels unseen in the recent past. Due to a tight supply, and strong demand in the global forefront, market faced a bullish situation and prices shot up in January. But as a sudden twist of trend, prices started declining, losing more than 40% in the second quarter of 2011.
Impact of the Global Price Decline:
Falling price of the commodity, and its disastrous consequences are the major concern for developing countries. The two parties involved in this process, the growers and the merchants; have conflicting interests. Both are in business to acquire profits. Growers seek to maximize their profits by cultivation, while merchants would try to earn more by marketing them. Growers will fix price based on input costs of production while cotton merchants will like to fix prices based on global price trends. When there is a declining price trend, then conflicts rise in deciding the producer price.