Market Review (06th Oct 2011 to 20th Oct 2011)

The international cotton prices tumbled on fortnight as weak demand caused by uncertainty over global economies. India's cotton prices are likely to decline in the week due to lower demand from yarn makers higher stock availability and lower prices overseas. The benchmarks Dec contract on ICE futures U.S. lower 5.68 cents or 5.54 % to close at $0.9682 per pound. The market has been pinned in a rough range from $0.9678 to $1.032 per pound over the last week.

The strengthening of the dollar that accompanied the recent increase in market volatility may have contributed to the downward move in cotton prices. There is an increase of 2.9 million bales to world ending stocks in 2011-12, which could be expected to put additional downward pressure on cotton prices. In addition to 2010-11 ending stocks was principally a result of higher estimated ending stocks in Brazil and Bangladesh. There was an increase in the 2011-12 world production from 123 million bales to 124.2 million. Meanwhile there might be a decrease in the world consumption from 115.2 million bales to 114.4 million, because of reductions by mill use.

In India, cotton prices are stable with moderate transaction. Cotton production in India is expected to hit record production of 36 million bales in 2011-12. But consumption is expected to be lower. Mills demand was limited due to poor demand of yarn while arrivals were at higher side. In the months to come exports are likely picked up. As arrivals of new cotton increase prices will come under pressure as mills' demand may be less this time. Exporters demand may continue even at lower prices. Arrival calendar is such that October will see 6-7 million bales of arrivals while in November and December arrivals would be 8-9 million bales. Good weather conditions in the cotton growing regions of India might lead to a record harvest in 2011. Cotton yield which has been falling for the past four years is believed to improve this year especially in Maharashtra and Gujarat as these states had witnessed good rainfall during monsoon. Cotton yield in India has gone down from 554 kg per hectare in 2007-08, to about 475 kg per hectare in 2010-11.

 Outlook

The weak demand from the US and Europe due to economic slowdown and diminished buying by domestic industry owing to financial crunch are the reasons for subdued outlook on mill consumption. Demand growth in emerging markets may offset some of the weakness in developed economies. In India, even though exports of cotton were allowed through Open General License (OGL) stream, it is not expected to be robust. The cotton exports are expected in the range of 7-10 million bales this year. Meanwhile, global cotton production is expected to rise by 8-10% this year, even as consumption by major countries has not climbed; this may force the global cotton prices to move further down. It could be expected that cotton prices will continue to move sideways in coming weeks.