Domestic Cotton futures, which touched historical low level of Rs 14,800 in the month of May (due to COVID fever), have been on a northward march since then and posted positive returns in next nine straight months. Cotton first month futures at MCX has surged by nearly 50 percent in last nine months amid firm cotton prices at ICE (US) and ZCE (China) index. ICE Cotton futures, which also went below 49 cents/pound in April have nearly doubled since then and touched 95.50 cents in last week of February (highest level since June 2018).
Resuming business activities around the globe after multiple months of restricted movement, world's largest Cotton consuming nation, China, buying more cotton this season, stark recovery in crude oil and humongous subvention package offered by central banks around the globe to combat COVID stress have helped natural fiber to post stark rally in global market since past many quarters. On top of it, lower returns from Cotton since last two consecutive years (due to COVID stress & US – China trade spat) is likely to drag world Cotton production lower by 7 percent this year (24.9 million tons). On the other hand, demand for natural fiber is expected to rise by 14 percent in 2020-21 season (25.5 million tons), which is expected to keep global Cotton stock lower this season. Moreover, attractive Indian Cotton prices in the world market and aggressive CCI procurement (procured nearly 92 lakh bales of Cotton across the country till last week of February) have added in the positivity in domestic Cotton.
However, after steep rise in Cottonseed prices in physical market (ruling above MSP of Rs 5,515 per quintal in majority of the state) CCI has nearly halted procurement operation of Cotton at present. Besides, demand from domestic millers is also reported to be limited at such higher price levels, which may keep Cotton prices under check in coming few weeks. Due to aggressive CCI procurement since last year, India is reported to have a huge carry over stock of Cotton this year. CAI estimates, Indian Cotton stock for this season near 115 lakh bales (170 kg each) for 2020-21 season, whereas, USDA projects Indian Cotton stock around 232 lakh bales for 2020-21 season. ICE Cotton futures, which surged above 95.50 cents level in last week of February have plunged by more than 10 percent since then (ruling near 85.70 cents as we write), whereas, domestic cotton futures have hardly moved by 2-3 percent since last week. Hence, unless, WASDE March report turns out to be very bullish, we expect Indian Cotton futures to trade on a weaker note in coming weeks.
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