Cotton prices, which increased throughout November, are likely to witness a 10% downward correction in short term, largely because of arrival of new crop, analysts feel. Economic recovery boosted the demand for yarn and spinning mills have entered the cotton market for building up inventory, pushing up prices.
Overseas demand for Indian cotton is also on the rise as the US, Brazil and Europe has had a bad crop. Production in China is also down with a fall in cotton acreage. Most of the countries are thus turning to India for supplies, putting pressure on prices.
Cotton sowing was 10-12% higher than that of last year. Due to irregular rains and lack of moisture, expected production has come down from 305 bales to 295 bales (1 bale=170 kg). Owing to shortfall globally, cotton is getting good price from foreign buyers of around Rs 3,000-3,500 per quintal compared to Rs 2,500 per quintal in the domestic market. As part of new crop has started coming and the rest is expected by December-end, prices may see seasonal correction of about 10% for a short term. However, prices would again be strong in the long term,?said Mehul Agarwal, research analyst, agri commodities, Sharekhan.
The general expectation was that with a high carryover stock of 71.50 lakh bales and a good crop estimated at 295 lakh bales, cotton prices would be stable, said Cotton Association of India (CAI).
However, prices rose sharply in November and the monthly average was not only significantly higher than the October figure, but also higher compared to the year-ago period. The rise in November was attributed to domestic and international buying as well as tight supply in the global market.
Last year, 8.5 million bales were exported and this year 4.7 million bales have already contracted for exports. Cotton futures for April 2010 contract is at Rs 675 level per 20 kg, while production in 2009-10 is expected to be around 340 lakh bales,?said Vibhu Ratandhara of Bonanza Commodity.
India, the second largest producer and consumer of cotton, produces around 11% of the world's cotton output. The other big cultivators are America, China, Egypt, Pakistan, Sudan and East Europe. Although cotton is cultivated in almost all the states in the country, Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Punjab, Haryana, Rajasthan, Tamil Nadu and Karnataka account for more than 95% of the area under farming and output.
