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Renewed buying and larger output balance cotton prices




  • The private estimates of Pakistan cotton crop (2004-2005) have now converged to the narrow range of 14.5 to 15.0 million local bales while initially official estimates were at 10.7 million 170-Kg bales which have now been revised upward to 13.2 million 170-Kg bales and are likely to be further revised upward to 14.0 million 170-Kg bales by the next month.
    Although, there was lot of hue and cry about shortages of irrigation water and availability of fertiliser both in Sindh and Punjab provinces but the God has given us a record high crop of about 15.0 million bales – about 50 % higher than that of last year. Not only alone Pakistan has produced record high cotton crop this season but other cotton prominent countries viz: China, USA, India, Uzbekistan and Brazil have also done it. It is squarely due to cotton friendly weather on global basis.
    The Government of Pakistan should take all necessary measure to maintain this level of production by improving agronomic conditions and adoption of bio-technology in evolving Bt. Cottonseeds / hybrid cottonseeds.
    Unfortunately, whenever, a record high crop is harvested in Pakistan, a marketing crisis develops due to mismanagement and mishandling of the crop. The Government may now realise its mistake of closing down its 25-year old well-established and well-groomed institution namely Cotton Export Corporation of Pakistan in 1996 of which performance was certainly better barring a few laps and mistakes. It now appears that cycle of cotton friendly weather may continue further to the next three or four seasons resulting in substantial increase in yield per unit of land.
    To meet the global competition in textile exports in WTO-regime, Pakistan must have sufficient cotton production, presently 15.0 million local bales, for meeting its increasing domestic cotton requirements with a minimum of one million bale surplus for export because it would be very difficult for our spinning industry to stay competitive in textile exports on imported cotton.
    Therefore, it is quite expedient in national interests to have a permanent body / institution manned by cotton professionals for managing local and export cotton marketing to ensure better return to cotton growers and a regular and proper supply of cotton to local spinning industry according to their requirements.
    Simultaneously, our old and worn-out cotton marketing system must be overhauled to meet new challenges of local as well as international marketing. In this regard, resumption of Cotton Hedge Marketing System under the aegis of the Karachi Cotton Associations is the need of the hour for streamlining the marketing system.
    The most important matter grossly neglected is the quality of cotton. To improve quality and marketing of our cotton / lint cotton to international standards, we have to immediately implement Cotton Standardisation / Cotton Grading system and establish a Cotton Ginning Institute for bringing overall improvement in quality of ginned cotton.
    Unfortunately, the Government has ignored all these steps although these steps have also been incorporated in the document of Textile Vision 2005. Now any delay in the implementation of these recommendations would cause colossal loss not only to cotton or textile sectors but to our national economy as survival of our economy squarely rests on cotton and textile sectors and the enforcement of quota-free regime would become effective from January 1, 05.
    Trading Corporation of Pakistan (TCP) has taken deliveries of some 1.1 million bales against their purchase contracts of some 2.2 million bales. The performance of TCP has reportedly been found far below satisfactory level as they operating on ad hoc basis by engaging unqualified and in-experienced workers temporarily and hiring the services of some cotton classers from Pakistan Cotton Standard Institute (PCSI).
    Even then TCP is under-staffed and have a weak base of infra-structure facilities. Their own storage capacity has been exhausted and are now reported to have hired some warehouses from private sector in upcountry stations. TCP’s final purchases may touch the level of about 1.7 million bales.
    Their purchase price is Rs 2,159 per maund ex-factory for average Grade 3 with staple length of 1-1/32 inches against its market prices of Rs 1800 – 1850 per maund.
    The growers are getting much below the Government’s assured price of Rs 925 per 40 Kg of seed-cotton but the ginners are getting the Government price of Rs 21,59 per maund. It means TCP is paying some Rs 300 – 350 per maund over and above market price.
    The TCP should have at least raised its standard of quality to Grade 2 or even Grade 1 with staple length 1-1/16 inches to reduce the Ginners’ profit from Rs 350 to Rs 200 per maund which the ginners can happily accept.
    This would have encouraged the ginners to produce better quality cotton. Some reports indicate that TCP received lots of cotton with quality lower than Grade 3 at this high price of Rs 2,159 per maund.
    The ginners appear quite dissatisfied with TCP’s performance as they have to face great problems at every stage specially in getting ad hoc payment. There is no automatic system which can guarantee prompt payment of 90 % price of cotton within the stipulated period of time. The ginners have to apply some sort of jack to get the payment.
    In its second Tender, TCP received the best bid of US Cents 39.53 per lb FOB for 10,000 bales from Cargill but after opening the tender bids, one party on 4th top position reportedly sent a counter offer of US Cents 40.15 lb to TCP and TCP also obliged this party and other top three were countered the same price.
    For the satisfaction of the international merchants, TCP should adopt a clear cut and transparent system which should meet the requirements of equity and justice.
    Lint prices in the local market remained depressed the reports of larger arrivals of seed-cotton. However, the spinners and exporters picked up better quality lots at comparatively better price around Rs 1,900 per maund ex-gin. Average cotton was selling between Rs 1800- 1850 while low-grade cotton was selling down up to Rs 1,600 per maund.
    In the coming couple of months, cotton prices specially of low grades may go down in view of larger low grade cotton stocks at the close of arrivals by end February,05.
    This low-grade cotton may find way in China , Thailand, Korea Republic and other countries of this region on price viability.
    India is reported to have allowed a subsidy of US cents 3.0/lb on export of 2.0 million local bales from current crop.
    The Cotton Corporation of India and Maharashtra Co-operative Societies would handle export of 2.0 million bales. As reported earlier, India is very much interested in exporting its cotton to Pakistan via Wagah border.
    Cotton prices in the international market picked up easy tone. March 05, contract closed at 42.90 down cent 1.23 and May 05 contract finished at 43.49 down only cents 0.59.
    The international cotton market has as yet not found its way but with the close of quota regime and start of quota-free regime under WTO from . January,1, 05, cotton prices may go up at least on psychological ground.
    With a view to reduce the apprehension of the textile importing and textile competing countries of the world in respect of complete domination of Chinese textile goods over US and EU cloth and textile markets, China is reported to be taking some measures to restrict its exports of a few sensitive textile items.
    On the other some countries are demanding postponement of quota-free regime for three years till 2008 but acceptance of this demand appears quite difficult.

    Courtesy: Business Recorder

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