There has been a dip in the growth rate in low variety cotton like Bengal Deshi. The prices for the month of May were around Rs 38.15 per kg, which is only 4% higher on a y-o-y basis while only 2% higher on a m-o-m basis. The general subdued price behaviour seen in the cotton market for the past two weeks is partly on account of the lack of support from cotton yarn markets and the general downtrend in the global cotton markets. In April the price stood at Rs 37.34 per kg, which was 9% higher on a y-o-y basis. It is evident that though the prices of premium quality cotton have remained more or less higher, the rate of growth in low variety cotton have been declining.

Cotton production forecast at 24 million bales

India’s cotton production in marketing year (MY) 2006-07 is forecast at 24 million bales, its second highest crop ever due, mainly to expected higher planting, according to a US Agriculture Department attache report. Cotton exports are projected higher at 3.5 million bales and imports at 500,000 bales on comfortable domestic supplies. If achieved, this will be India’s fourth consecutive bumper crop, and just below the record MY 2004-05 crop of 24.3 million bales. Cotton planting is forecast to increase to 9.0 million hectares on strong cotton prices and good yields during the current (MY 2005-06) season.

Production of extra long staple (ELS) cotton is forecast to rebound to 200,000 bales on expected higher planting of DCH 32 (the local ELS variety), due to record high prices in the current season. Monsanto’s Bollgard Bt cotton has helped farmers increase revenue by 118%, yield by 64% and reduce expenditure on pesticide by 25% during 2005.

Bt cotton planting expected to jump nearly threefold

Bt cotton planting in MY 2006-07 is expected to jump nearly threefold to 4.2 million hectares, thereby accounting for almost half of the expected area. Recently, the government of India approved 20 new Bt varieties for commercial cultivation. The new approvals include two varieties that have a Bt gene developed by a local university and two varieties with a Bt gene sourced from China. The other varieties have the Bt (Cry1Ac) gene developed by Monsanto that was approved in MY 2002-03. Cotton textile production in fiscal year (FY) 2005-06 witnessed strong growth that was fueled by abundant cotton supplies and strong domestic and export demand. Production in FY 2006-07 is forecast to grow by 8 to 10% on the expected bumper cotton production and the continued growth in demand.

Cotton consumption is forecast to rise by 8%

Cotton consumption in MY 2006-07 is likely to benefit from the expected sufficient supplies, continued good domestic and export demand for textiles, and relatively lower prices vis-à-vis man-made fibre (MMF). Consequently, MY 2006-07 consumption is forecast to rise by 8% to 22.2 million bales (mills 18.5 million bales, small spinning units 1.9 million bales, and non-mill 1.8 million bales). Prices are expected to rule steady in MY 2006-07 on large carryover stocks and expected near-record production. However, international cotton price movements could temper domestic prices. Moreover, India will continue to import mostly ELS and quality long staple cotton (28-34 mm), with occasional imports of medium staple cotton when international prices are favorable. The United States has emerged as the leading supplier of cotton to India over the past few years. Indian mills that import US Pima and upland cotton are appreciative of its quality and consistency, and this impression has been cemented through trade servicing missions by the cotton Council International and SUPIMA. However, US cotton prices will have to remain competitive to offset the freight advantage and shorter delivery periods enjoyed by neighboring suppliers like Egypt, West Africa, the Commonwealth of Independent States (CIS), and Australia.

Outlook

Despite the fact that the low-end cotton prices have started to soften, the prices of finer varieties like DCH, and Shankar 6 have not followed this trend. Cotton’s share in the textile industry’s total fiber use rose over the last two years on comfortable domestic supplies (three consecutive bumper crops) and a favorable relative price of cotton vis-à-vis MMF. Cotton’s share in total fibre use is expected to grow further to 59% in MY 2006-07, as prices move in favor of cotton vis-à-vis MMF (affected by high petroleum prices).