With a fall in output, India’s cotton imports will rise to a record high this year. Mills will be forced to import at whatever cost to keep their factories running. Exports are also expected to shrink. However, in view of the lower crop, if exports take place as estimated, prices of domestic and imported cotton will remain firm.

Prices in the international market have fallen sharply the past one month, which raises concerns about exports in the immediate future. However, prices in India are not falling in tandem. Global cotton fundamentals suggest world cotton prices are at seasonal low. However, there is a high chance that the benchmark US cotton futures contract has decoupled from the global cotton valuations as a direct consequence of the ongoing trade war.

If the last season’s low levels are breached, it would be due to factors outside the fundamentals of the commodity. The ongoing trade war between the world’s two biggest economies has brought the global economy on the verge of another financial meltdown. This has a direct bearing on cotton textile consumption and demand. If global cotton prices breach and sustain at last year's low levels, there is a high chance of this event materializing.

In such a scenario, if India’s exports also remain lower than estimated, imports will also not rise as mills will get domestic cotton.