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ANALYSIS: aggressive buying halts declining trend in cotton prices




  • According to Pakistan Cotton Ginners’ Association (PCGA) report, seed-cotton (phutti) arrivals up to September30 have registered a robust increase of 85.90 percent (Sindh 59.83 percent and Punjab 103.45 percent) over same period of last year. This does not mean that the same increase rate will be sustainable till the end of the season.
    The increased arrivals dominated in all the 29 cotton districts (Sindh 9 and Punjab 20), except Bahawalpur district of Punjab which is the main cotton producing district.
    At present there is a general consensus among all cotton stakeholders that the size of the current cotton crop appears to be much larger than last year, but differ on the extent of increase which runs between 25 and 40 percent. Some cotton circles think that the impact of heavy recent rains in Sindh and late monsoon rains in Punjab last week have impacted negatively, to some extent.
    The crucial month of September is over but late monsoons are there in Punjab. In cotton trade galleries, some whispers were heard about worries of the health of cotton crop in Punjab.
    This writer also received reports of attack of boll worm in some areas of Bahawalpur and Bahawalnagar districts, besides reports of reddening of cotton plants in some areas of Lower Sindh and Central Punjab.
    The perception that we may not harvest as much a big crop as is generally considered is getting getting credence. By the middle of this month, about 3.0- 3.2 million bales (roughly 18 to 20 percent of total crop ) would have arrived at the ginneries and the buyers–spinners and exporters–are picking up most of the pressed bales on consideration of better quality and lower prices–down to Rs 1,700 per maund.
    Finding the level of prices quite lower than matching foreign growths, our merchants are understood to have committed some 80,000 – 100,000 bales in export sales and are quite aggressive in cotton purchasing, but prices of seed-cotton and lint cotton broke the barriers of support prices of Rs 925 per 40 kg and Rs 2,159 per maund for Grade III staple 1-1/32″ respectively.
    To arrest the downtrend in prices which would be detrimental to the interests of growers, the Government has its the Trading Corporation of Pakistan (TCP ) in the market with the mandate to keep the cotton prices above the level of Government Support Price through cotton procurement.
    Till now the TCP is reported to have entered into purchase contracts of some 132,000 bales cotton from ginners at Government rate of Rs 2,159 per maund ex-gin, against which only a couple of lots ie about 500 bales have been delivered to TCP at its Orangi Store, Karachi.
    Surprisingly, cotton prices kept on declining reportedly to touch the level of Rs 750 per 40 kg of seed-cotton against Government rate of Rs 925, and Rs 1,700 per maund of lint cotton against Government price of Rs 2,159.
    The reasons for this crisis-like market situation are hard to find. A question arises as to why cotton prices are going down despite the fact that TCP is operating as a buyer. Is TCP a real buyer or a dummy buyer? Why the ginners opt to sell their lint cotton to spinners / exporters at discount of about Rs 300-350 per maund?
    Ginners are of the view that TCP is not serious in taking delivery. There is a growing dissatisfaction among cotton growers who say that in fact TCP is helping the ginners by purchasing lint cotton at a fixed Government price of Rs 2,159 while its market price is only between Rs 1,800 and Rs 1,900 per maund.
    Most serious is the matter that the ginners are buying seed-cotton from growers at rates between Rs 775 and Rs 825–much lower than Government fixed rate of Rs 925 per 40 kg.
    Practically, this Government scheme has not misfired but backfired on growers. It means the Government is practically supporting the cause of ginners and hurting the cause of cotton growers. Either the Government should discontinue the system and let the market be governed by the demand and supply forces, or ensure that cotton growers do not get less than Rs 925 for their produce. Although the Government really wants to support cotton growers, the lobby of buyers works otherwise.
    This system of procuring cotton does not really help the growers because it has a lot of loopholes and an inefficient and, to a great extent, corrupt machinery for its implementation.
    Alternatively, the Government can help the growers either by giving some relief in prices of inputs including seed, fertiliser and pesticides, or some relief in recovery of land revenue and water charges (Aabyana ) or give relief in the form of cash payments, say at the fixed rate of Rs 1,000 per cotton sown acre directly to cotton growers.
    The purpose is that relief should reach the deserving people and should not be usurped by corrupt and privileged class of people. We may not find foolproof and corruption-free system but should try to adopt a system comparatively better and effective system.
    Taking cognisance of the sensitivity and intricacies of the situation, the Government is holding meetings of all cotton stakeholders and discussing the situation.
    The ginners do not appear in a mood to guarantee payment of Rs 925 per 40 kg to growers unless they are assured corresponding rate of Rs 2,159 per maund for their lint cotton.
    Generally, representatives of stakeholder and Government officials take part in meetings and discussions and because of diverging interests only work for their respective interests and the Government officials sometimes fail to make them agree to a decision acceptable to all factions.
    Therefore, in all such meetings and discussions on important issues of economic and business nature, prominent subject experts of high repute on impartiality and professionalism should be called and their independent and professional views and ideas should be sought which may help in reaching a consensus among the participants.
    The vested interests are already denying cotton growers / suppliers the payment of premium for better quality cotton which roughly works out to more than Rs .5.0 billion a year.
    The agriculture community thinks that Jehangir Tareen, who is a well-known agri-expert and has comprehensive knowledge of the affairs of agriculture and problems of growers, is said to be the most suitable person among the Cabinet members of Prime Minister Shaukat Aziz to head the Ministry of Agriculture, instead of Industry.
    Reportedly he commands support of a large segment of agri-community, specially growers. He can perform well in boosting agriculture sector to the desired level.
    The Government should work out a viable formula which may ensure regular supply of lint cotton to spinners at reasonable price and due payment at the rate of Rs 925 per 40 kg to cotton growers / suppliers.
    Lint prices in local market marked some improvement of Rs 25 to 50 and were ruling on last Saturday between Rs 1800 and 1925 per maund. On Saturday, the exporters and spinners swept off almost all cotton from the market.
    The ruling lint cotton prices in domestic market are perhaps the cheapest in the world. Foreign inquiries India may have surplus for export some 1.9 million bales (India’s production 21.0 million local bales and consumption 19.1 million bales ) and has started offering Shaker-6 around 54 cents/lb which is not workable in Pakistan.
    Instead, Pakistan is offering its cotton to India at much cheaper rates and on price consideration there stand bright chances of bargains. Taking all factors into consideration, there is a general opinion of the trade that lint prices have already been bottomed out on the level of Rs 1,700 per maund and are now increasing.
    New York cotton futures operated within narrow margins. October contract went off the board and now December and March are active in trading. On Friday, October 8, December closed at 47.35 cents a pound, March at 49.37 and May at 50.50 cents per pound.
    US may be issuing its latest cotton production / consumption estimates probably on Tuesday, October 12, which are expected to be somewhat lower than earlier ones.
    China has already issued its cotton import quota of 894,000 tons (= 4.1 million 480-lb bales) for the year 2005, of which 33 percent will go to State Enterprises. China imported 1,980,000 tons cotton (8.415 million bales) in past 12 months up to August 2004. China added 60,000 tons cotton to its inventory of Reserve Stocks through purchasing from open market in last July.
    China has made great progress in evolving trans-genetic anti-insect cotton strains and had developed a vector containing one anti-insect gene in the last decade of last century.
    China is also working on building genes to improve cotton quality and raise its output. India is very aggressively expanding its cotton area under Bt. Cotton which is now around 3.0 million hectares (almost equal to Pakistan’s total cotton area ) out of total cotton area of 9.0 million hectares in 2004-05 season.
    Pakistan is very late, rather reluctant to adopt Genetically Modified (GM) technology.
    Last year, India produced a crop of 17.7 million 170-kg bales but this season an all-time high cotton production of 21.0 million 170-kg bales (=16.4 million 480-lb bales) is estimated by adopting new technologies in seed and agronomy. India is expecting a record high cotton yield of 400 kg per hectare this season against their traditional yield of 312 kg in previous years.

    Curtesy: Business Recorder

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