Uncertainty over the control of COVID-19 has led to a decline in trading in various industries as buyers are refraining from making new purchases. Especially cotton is nearing its lows of early December 2019, after a rally in January. Though in the last few weeks, sale and shipments of cotton have seen strong business in the US, however, the pace is likely to be impacted because of the epidemic. As per USDA’s early projection, the US cotton planted acreage in 2020 is likely to decline by 9 per cent to 12.5 million acre.
Besides Coronavirus, other factors that are likely to contribute to the uncertainty regarding acreage decisions for 2020 include: production issues and results during 2019, the effects of the Phase One trade agreement with China and the impact of the coronavirus on cotton demand. The final look at projected acreage for 2020 comes with USDA’s Prospective Plantings report on March 31, based on a survey of producer planting intentions to be conducted in early March.
US cotton sales decline by 33 per cent
The net sales of cotton variety 235,300 RB declined for 2019/2020 declined by 33 per cent from the previous week and 30 per cent from the prior 4-week average. Similarly though exports of 375,700 RB declined by 6 per cent from the previous week, but increased by 5 per cent from the prior 4-week average. These exports were primarily directed to countries like Pakistan (97,100 RB), Vietnam (85,200 RB), China (46,400 RB), Turkey (31,400 RB), and Indonesia (21,100 RB). Exports of 57,300 RB, including 700 RB switched from Japan to Vietnam and 400 RB switched from Taiwan. Exports of 57,200 RB to Pakistan decreased while the export of 46,600 RB and 7,300 RB switched from Vietnam to Turkey.
International recognition to cotton through HIRA
In India, the Cotton Corporation of India (CCI) launched ‘HIRA or High in Reliable Attributes’ a brand of Indian cotton with specific quality parameters. Having less than 1.7 per cent of trash, low moisture, better grade, etc, this initiative will help Indian cotton get international recognition. CCI also supports Indian cotton farmers by purchasing best possible quantity and quality at MSP price. Both CCI and Maharashtra Cotton Federation jointly can buy more than 10 million cotton bales for the season 2019-20, which would be nearly 25-30 per cent volume of estimated crop for the season 2019-20. This would support the Indian spinning industry as well if CCI sells its cotton when the industry needs it, at real prices, and an actual premium for quality cotton. Indian physical cotton market has not yet achieved the ratio of 1:1 with international cotton prices as seed cotton prices are higher due to MSP support and they trade at its lower level with lower cotton lint prices. Most ginning factories have reduced production to reduce losses, thus resulting in low availability of quality cotton (bales) in the market.
Till February 2020 -end, around 26-26.50 million bales of cotton bales are likely to grow in India. Farmers still have good amount of quality cotton in view of better prices in near future.
In the current month, MCX cotton is trading at lower prices than the physical cotton prices in open market. As of now Indian currency is one of the most stable currencies, trading within narrow range limiting currency risk to market. It would be interesting to see how CCI will move ahead to sell its cotton in this international bearish sentiment due to COVID-19.