High cotton prices drive demand for raw materials at reasonable prices

CURRENTLY, cotton and soybean producers have more than one common cause among themselves. Producers of both crops are profiting from a rare price hike even as other participants in the value chain cry foul.

If the poultry industry had complained about the exorbitant prices of soybeans, it is now the turn of the textile industry to protest against the record prices of kapas (unginned raw seed cotton). The common cause between the poultry and textile industry is, curiously, the business platform of the future which they believe has resulted in unhealthy speculation and therefore a rise in commodity prices.

Since the start of the current cotton marketing year (October-September), the negotiated average price of Kapas in most markets has been well above its minimum support price (MSP) declared by the government of Rs 5,726. / quintal (basic average). Talks about a pinch in global supply and a short crop in the country have resulted in a further rise in prices even as farmers have decided to save their harvest rather than unload it.

At present, the prices of Kapas in most markets of Gujarat, Maharashtra and Andhra Pradesh are trading well above Rs 10,000 / quintal which, according to market sources, is a historic peak.

India’s cotton production, according to traders, can be around 300 lakh bales (1 bale = 170 kg of pressed ginned cotton) compared to previous estimates of 340 to 345 lakh bales. The price of sweets (356 kg of ginned cotton) is around Rs 74,000, which has clouded the export outlook.

Indian exports, according to most, are around 30-35 lakh balls versus the normal 60 lakh balls from last season. Domestic demand, traders point out, would ensure that few products leave the country. So far, around 130 lakh bales of cotton have reached the market, with farmers hoping for higher prices in the days to come.

While farmers are confident in better prices, the textile lobby mainly from southern Indian states has pressed the SOS button due to high commodity prices.

Textile makers in central Tiruppur in Tamil Nadu decided to go on a two-day strike later this month to protest the higher-than-normal prices of yarn and candy. A major New Delhi-based textile manufacturer had even written to the Prime Minister asking for immediate intervention to help him obtain raw materials at a reasonable price.

One of the main demands of textile manufacturers, who source candy or yarn and weave them into clothing, is to ban lint trading on the future trading platform of the National Commodity and Derivatives Exchange and the Multi Commodity Exchange. In their letter to the Prime Minister, they complained of speculative activity mainly on these platforms which drove up physical prices. Tamil Nadu’s Chief Minister MP Stalin lent his voice to textile manufacturers and called for a reduction in import duties on cotton to ease prices.

The current situation in the cotton value chain has a strange parallel to what happened with soybeans last year. Alarmed by historically high oilseed prices, poultry farms that use de-oiled soybean meal (the protein-rich solid left after the oil is expelled from the seed) as a feedstock for poultry feeds wrote to the government to allow imports and completely ban on future trade in oilseeds.

Lobbying on their part had seen India allow the import of genetically modified soybean meal for the first time. Of the 12 lakh tonnes allowed, around 7 lakh tonnes have already reached Indian shores.

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