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ANALYSIS: some positive developments improve cotton prices




  • KARACHI (August 10 2004): The much-awaited and widespread rains last week in cotton areas of Sindh and Punjab cotton belts have benefited the cotton crop. Since cotton sowing was not done at one time but at different times due to shortage of irrigation water, the crop throughout the country is at different stages of growth. This phenomenon reduces the risk of widespread damage to cotton crop.
    However, rains may delay the opening of bolls in some early sown areas but would generally be quite beneficial for the development of plants.
    Presently, the condition of crop is ‘good’ to ‘very good’, and harvesting of a bumper crop of 11.5 million 170-kg bales appears quite realistic but the crop has to pass through a crucial period of about eight weeks till the first week of October. It is heartening to note that growers appear quite alert to face any eventuality which may cause damage to cotton crop.
    If the rain continues longer it would slow down picking operation and cotton movement to markets/ginneries for a week or so. About a dozen of factories in lower Sindh and a couple of dozens in Punjab have resumed operation in new cotton crop and others are in queue.
    The ginners appear quite reserved and cautious in marketing of seed-cotton and lint cotton as they say they suffered heavy financial losses in 2003-04 season as they are reported to be carrying unsold cotton stocks of about 300,000 bales of last season.
    One press report said that Finance Minister Shaukat Aziz has assured the PCGA delegation that entire unsold cotton stocks from old crop with the ginners would be purchased by Trading Corporation of Pakistan. But trade circles did not confirm it.
    However, the government is understood to have issued instructions to Trading Corporation of Pakistan (TCP) to purchase 0.1 million bales of 2004-05 crop to stabilise falling seed-cotton prices above the Minimum Support Price level of Rs 925 per 40 kg ex-gin.
    Reportedly, this purchase order has been given to TCP on the condition that TCP would not make any loss.
    Since cotton crop has only just started moving and the spinners are already lifting what is produced, the government step showing intention to intervene in cotton market as third buyers appears quite premature.
    One TV report said that TCP would be setting up its procurement centres in Mirpurkhas and Nawabshah by August 15, and other centres in Upper Sindh and Punjab would be set up by September 15.
    Some people think this decision may have some political motives as elections will be held in Mirpurkhas/Tharparker constituency on August 18 and Shaukat Aziz is contesting this election.
    The other day reportedly Sindh Agriculture Minister said that transportation of Sindh seed-cotton to Punjab would be checked to make it available to Sindh ginneries.
    As a matter of fact, this step would go against the interests of cotton growers. When there are no restrictions on movement of raw cotton within the country then why on seed-cotton?
    According to the document ‘Textile Vision 2005’ prepared in 2000, Pakistan’s cotton production is planned to be increased from 10.0 million bales in 2000 to 15.2 million bales in 2005 but the government has fixed production target at 10.7 million bales in 2004-05.
    In the same document, for strengthening of cotton marketing system, three measures were recommended: (1) Opening of Cotton Hedge Market; (2) Implementation of Cotton Standards; and (3) Setting up of commercial warehousing.
    For improving quality of lint cotton three measures were recommended: 1) Improving staple length from 26 millimetres to 29 millimetres; 2) Reduction in contamination/trash percentage; and 3) Improving Ginning technology.
    Now, 2004-05 season has already commenced but we do not appear to have moved an inch either towards increasing production to 15.2 million bales or towards improving the quality of lint cotton.
    The WTO regime, ensuring implementation of free trade among the countries, would be enforced from January 1, 2005. This attaches very high importance to adoption/implementation of international standards in all agricultural as well as industrial commodities.
    The government appears reluctant/hesitant in implementing Cotton Standards at ginning stage although the whole scheme is ready and the President of Pakistan has already issued a decree in this regard in November 2002.
    Our cotton and textile statistics lack reliability; our marketing system has collapsed; and performance in cotton productivity and quality control is miserably poor. Then how our textile sector would be able to compete with other countries?
    On the reports of government intervention in cotton market, new crop cotton prices have improved by Rs 75 to Rs 100 per maund from Rs 2,200/2,250 to Rs 2,300/2,350. And, old crop cotton has also gained some strength. But this sentiment may lose force after by-election of National Assembly seat in Tharparkar (Lower Sindh) on August 18.
    Unsatisfactory domestic law and order/security position, increasing inflation rate, reducing home-remittances/forex reserves, high level of oil prices – around US $44 per barrel – and slack yarn market are the factors likely to cast bearish effect on the markets of cotton, yarn and other textile goods, at least in the next couple of months.
    Trade circles expect world crude oil prices to stabilise around $40 per barrel. The high oil prices would adversely affect the economies of oil deficient countries. High oil prices would increase cost of production and the real economy would slow down.
    The good news is that European Union has decided to withdraw anti-dumping duty on import of bed linen from Pakistan.
    New York future cotton market showed some improvement from previous week. October contract finished at 44.90 cents, and December at 45.60 cents appreciating by 107 C/pts and 120 C/pts respectively.
    In the week ended on July 29, China rejected 61,100 bales and Bangladesh 2,800 bales. US total export sales in 2003-04 season were as under:
    =========================================
    Export Sales Shipments
    —————————————–
    Upland 13,976,400 12,633,200
    Pima 538,100 520,900
    Totals 14,514,500 13,154,100
    =========================================
    Main buyers of US cotton (in million bales) were: China 4.85; Mexico 1.97; Turkey 1.54; Indonesia 0.93; Pakistan 0.592 (including 94,000 bales of US Pima); Thailand 0.53; Korea Rep 0.52; Canada 0.46; Taiwan 0.42; Japan 0.31; India 0.28; and Bangladesh 0.23.
    US will issue its first cotton report of 2004-05 crop on August 12 and only then some clear picture would emerge.
    On the last day of the week Cotlook A index was 53.05 and B index at 51.15 while in China A-index was 71.99 and B Index 64.30 on 6th August 04. Cotton trade is very minutely looking at the development of cotton crop and even minor change would be reflected in price.
    However, easy factors are dominating the cotton market and only if some big dent in cotton crop of any prominent cotton producing country would only change the direction of present bearish trend.

    Courtesy: Business Recorder

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