Cotton glut sees prices tumbling

16 Dec '05

2 min read

A record cotton output last year, and another bumper figure in the making this year, should bode well for the country's textile industry that is riding high since ending of textile quotas, at the start of this year.

However, now comes the problem of the plenty against earlier situation when drought or floods adversely affected output.

While average daily arrival of cotton bales at the local markets reaches 150 lakh bales, lagging behind is the domestic consumption by composite textile mills, which is about 50,000 bales, whereas small spinning mills and other non mill consumption barely reaches about 10,000 bales.

Thus, Indian markets overflowing on one hand, and exports within a range 5000 to 20,000 bales only, mounting stocks will put the prices in the downward spiral mode.

Only Government intervention or 'a hand of God' sources say can avert the cotton prices downslide.

Government sources say end December 31, 2005 official cotton stocks will be about 96 lakh bales, worth almost Rs 8160 crores at a going rate of Rs 8500 per bale.

The growing stocks will continue till May end, and only during June-September 2006 that the mill sector consumers begin activity that may witness reduction in stocks.

The only saving grace is the intervening four months period that may not see any significant arrivals in the markets.

Cotton output in India is affected on several counts like natural calamities like floods, drought and pests. But over the years, average rainfall, strong variants and introducton of GM transgenic cotton seeds have led to this glut, view market insiders.

Official forecast by the Cotton Advisory Board (CAB) has fixed the figure of about 242.50 lakh bales in stocks, in excess.

Thus, if all goes well cotton production for the 2005-2006 season ending September 30, 2006, will witness India saddled with record stocks.

Consequence of this is quite telling since glut in cotton stocks will push prices down in the lower range till probably around May end, thereafter, cotton arrivals will cease for the season.

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