India’s cotton production in 2018-19 is estimated at 343 lakh bales, less than the previous year’s harvest of 348 lakh bales. Steadily falling global prices along with weak demand for cotton yarn may drag domestic prices lower in the months ahead. Output is seen taking a hit as high summer temperatures, delayed onset of monsoons and water shortage especially in key cotton growing states of Telangana, Andhra Pradesh, Karnataka and Maharashtra have affected cotton yield, which has driven prices higher. Domestic spinning mills are inclined to import and save costs. However, it is hard for small and medium enterprises to import, as they may not have the financial muscle to buy and store. On the other hand, weak garment exports have been weighing on the demand for yarn. So the trend of rising domestic cotton prices may reverse over the next few months. At present, imported cotton is nearly Rs 3,000 to Rs 4,000 cheaper than the domestic price.
Fall in global prices has tempered the rise in domestic cotton prices. In global markets, cotton prices have declined largely as the escalating US-China trade war has hit demand for the commodity. While the US is one of the largest exporters of the commodity, China is the largest consumer.