ANALYSIS: larger phutti arrivals depress cotton prices

Pakistan Cotton Ginners’ Association (PCGA) last week released its seed-cotton arrivals report but without comparative figures of last season. However, we give below comparison with a difference of one fortnight.
If during the second fortnight of September, 2004, same cotton quantity of 980,027 bales is received as was received last season then on September 30, 2004, total arrivals would be 2,051,782 bales against 1,169,557 bales received same time last year.
Field reports indicate larger arrivals and we also expect arrivals larger than last year. By the end of August, 2004, some 114 percent arrivals of seed-cotton were reported as compared to last season. Now, the increase percentage has been decreased to 75.42 percent but in terms of bales it has increased considerably. Just study the above-mentioned figures and come out with some concrete conclusions.
In my opinion, this trend of increased arrivals indicates larger crop this season. If the final increase percentage comes to 20 percent then we would be harvesting a bumper crop of 12.0 million bales. One important aspect is that this season the Government has abolished levy of 15 percent sales tax on lint cotton which would discourage concealment of cotton production and its sales to mills or exporters. Thus, the estimated 500,000 bales of cotton traded underhand previously would now be put on record. Another point is that last season there were abnormal rains which had delayed cotton crop but this season the position is different. However, we may harvest a bumper crop of 12.0 million 375 lb bales this season, almost 20 percent more than last season.
Quality of cotton is also very good as less rain was received and no major pest attack has been reported which generally lower the quality of cotton. Although our domestic demand for cotton is about one million bales more than our expected production of 12.0 million bales our cotton market may face difficult situation paving the way for Trading Corporation of Pakistan (TCP) to enter the market to ensure guaranteed price of Rs 925 per 40 kg of seed-cotton to growers.
TCP is understood to have fixed its benchmark price of Rs 2059 per maund ex-gin for lint cotton Grade III Staple 1-1/32″. Apparently, TCP seems to have done its homework for commencing procurement of lint cotton if such situation arises in the meantime. If by luck Pakistan harvests a bumper crop of 11.5 – 12.0 million bales this season, the whole credit would go to natural factors. Neither Provincial Agriculture Departments nor the Federal Ministry of Agriculture nor the Government Agencies have played any extraordinary role for this possible bumper cotton crop.
Reportedly there are inquiries for Pakistan cotton from Bangladesh, Indonesia, Taiwan South Korea etc and reportedly export sales in the range of 15,000 to 20,000 bales have already been committed at prices between 48 cents and 51 cents/lb FOB Karachi basis. In view of decline in cotton prices, larger arrivals and relatively strong US dollar, prospects for export of Pakistan cotton appear quite bright.
The local cotton market was affected by fluctuations in New York cotton futures. Reports of larger cotton arrivals and resumption of a good number of ginning factories have affected lint prices which remained easy to steady. In the middle of this month, some 400 factories were reported to have gone into ginning operation of new crop. The Karachi Cotton Association on the last day of the week had fixed Rs 2,225 per maund of 37.324 kg as pot rate for Grade III staple 1-1/32″ cotton. Lint prices in Mirpurkhas area were between Rs 2,150 and Rs 2,200 per 37.324 kg ex-gin; in Sanghar District between Rs 2,200 and Rs 2,300; and in Punjab between Rs 2,150 and Rs 2,300.
There were indications of some down drift in cotton prices in the coming weeks. However, the ginners would prefer to sell lint cotton to private buyers even at TCP price of Rs 2,059 or down to Rs 2,000 in view of delay in deliveries and payments and government’s difficult procedure. Those spinners who had booked foreign cotton at higher prices are now in difficult position in view of low rates. Reportedly, some of them are trying to settle the bargains. Spinners’ first preference is for local lint cotton which is relatively cheaper than imported cotton of matching quality.
Yarn prices are also reported to have picked up and yarn sellers can find buyers in local as well in exports.
New York cotton futures fluctuated widely last week but finally closed at narrow margins. Retiring October contract settled at 50.21 cents, down 100 C/Pts; December at 48.43 cents, down 229 C/Pts; and March 2005 at 49.86 cents, down 224 C/ Pts.. The main reason for wide fluctuations in values was the fear of possible damage to cotton crop by storms / heavy rainfalls in USA and China. The critical period for cotton crop would almost be over by the end of this month and thereafter size of cotton crop would be estimated more precisely.
For the interests of valued readers, NY cotton future values of three consecutive contracts on September 17 of 2001, 2002, 2003 and 2004 years were as under.

Year October December March
2001 35.58 36.75 38.58
2002 41.18 43.14 45.65
2003 64.43 66.59 68.75
2004 50.21 48.43 49.86

As to the damage by hurricanes, trade circles estimated loss of some 500,000 bales in US crop size which USDA recently put at 20.90 million bales. However, there may be some damage to quality as about 50 percent bolls were reported to have opened.
The recent torrential rains which lashed eastern part of China have caused damage to its cotton crop. Concerned circles estimate total damage up to 2.0 million bales and place China crop between 27.55 and 28.80 million bales.
Although farmers have started deliveries of seed-cotton to ginning factories but in view of lower prices are holding back sales. In China average prices of seed-cotton (Phutti) are equivalent to Pak Rs 1200 – 1350 per 40 kg; cottonseed around at Rs 430-450 per maund of 37.324 kg; and lint cotton Rs 3,300 per maund. The ginning outturn in Chinese cotton is 35 – 36 percent whereas it is around 33-34 percent in Pakistan cotton.
Cotton crop in West and Central African countries is progressing well and their total production is estimated around 4.97 million bales, up 0.25 million from last season. Main producing countries are Mali 1.1 million 480-lb bales, Burkina Faso 0.96 million bales, Benin 0.597 million, Ivory Coast 0.551 million, Cameroon 0.482 million, Nigeria 0.436 million and Togo 0.344 million bales.
US cotton growers are likely to start offering cotton for general sale in October taking into consideration a clear picture of their crop size. Then the prices are expected to go down. China may not officially declare its latest crop position soon. China would play its game in cotton imports very cautiously taking lesson from last season’s cotton imports. India is not in a position to make cotton available for export in bulk quantity up to one million bales. However, it would go for cotton imports up to one million bales or more to meet its requirement of quality cotton.

Curtesy: Business Recorder

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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