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2008 watershed year for cotton prices & sales
Feb '09
2008 was a watershed year for raw cotton also called the white gold. The cotton markets went through a roller coaster ride throughout the year by touching historic highs as well as plummet by nearly 40 percent in the fourth quarter of the year. Fortunately, the year closed with cotton prices ruling at only 15 percent lower than those prevailing in January 2008.

The prices which regained stability in December can be attributed to the procurement plan of the Chinese as well as the Indian governments. The prices in the Indian markets prevailed higher than global markets due to the increase of 25-40 percent effected in the Minimum Support Price (MSP) by the government.

Firming up of cotton prices is also attributed to the weakness of the US dollar. Physical demand however remained low in most of the key cotton consuming countries like India, China and Pakistan due to the global slowdown. The slow down has increased inventory levels of spinning units in turn putting pressure on yarn prices.

The US, which exports 60 percent of its cotton crop as also seen its shipments falling by 50 percent compared to the same period of the previous year to 300,000 bales. The credit crunch prevailing in global markets is also adding to the woes of spinning units who are unable to execute or sign new contracts due to lack of liquidity.

There is a growing fear that the trend which has increased in the last few years of farmers shifting from growing cotton in favour of other cash crops will pick pace in 2009 and also the lower realizations from the sale of cotton lint in the current cotton season may lead to lower global production of cotton in 2009.

Demand for cotton has fallen drastically in the last few months. Demand for the white gold has plummeted by as much as 24 percent from China in the last six months of 2008-09, comparable to the same period of 2007-08. The high prices prevailing in the Indian markets have also brought about a fall in demand from the Indian spinners.

Fibre2fashion News Desk - India

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