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Good cotton output if rain will be normal
May '11
The most recent cut in estimate of cotton output in India for 2010-11 came from the Ministry of Textile in early May. The Ministry lowered the production estimate to 30.5 million bales. The lowering of the estimate has been attributed to the crop damage due to unseasonal rains in December followed by extreme cold wave in parts of Gujarat, Maharashtra and Andhra Pradesh.

This is in line with most agencies that give out cotton output forecast except the Ministry of Agriculture which kept the estimates unchanged in its Third Advance Estimate released in April (Table 1 - see pdf file).

Cotton Corporation of India (CCI) reported 28.9 million bales of cotton arrival as of May 8th, 2011 amounting to mere 2.6% increase over last year. Maximum arrivals were reported from central India led by Gujarat. The peak arrival season in India runs from March to April. Press reports suggest a 7-10% increase in acreage under cotton in the new season spurred by high prices in 2010-11 and expectations of a higher minimum support price (MSP) from the government.

The estimate augurs well with the Indian Meteorological Department's initial forecast of normal monsoon for 2011. Good cotton output is expected to continue in the new season if the rainfall is normal given the dependence for irrigation.

The mills are reported to have reduced their offtake from mandis during April, while the farmers are reportedly stocking on seeds for the next season fearing increase in seed prices.

The state governments of Punjab, Haryana and Gujarat have approved hike in seed prices. Withdrawing its stance from end of March, on May 6th the government once again set limit on export of cotton yarn applicable for financial year 2011-12. However, the cap has been revised up to 845 million kg from 720 million kg last year. Cotton yarn export has been capped to avoid shortage of yarn in domestic market till the new crop starts arriving.

Daily trading volume in NCDEX Kalyan/V797 kapas futures contract averaged 4,455 MT with the open interest hovering around 5,334 MT during the month of April (Figure 2). April futures for kapas tracked the spot market closing 23% lower than beginning of the month (Figure 3). The contract which expired on April 29th was the last futures contract for the cotton year 2010-11.

Click here to view more details on cotton report:

National Commodity & Derivatives Exchange Limited - NCDEX

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