Cotton markets performed relatively better last week when compared with the week before. Against a positive price view for the longer term, cheapening spot offers pushed demand slightly last week resulting in a higher price action for Cotton seed/ cotton 29 mm fiber and cotton cake.
Prices at Akola and Kadi have appreciated by Rs.40-50/qtl over previous week. In Kadi cotton cake is currently offered around Rs.2690/qtl while in Akola the offered price is near to Rs.2750/qtl. In Rajkot, cotton seed price averages near Rs.1300/20 kgs, up Rs15 week on week. Net demand for the cotton complex products had turned low during the later part of April because of the second wave of corona virus and falling production in the textile mills. Growers were forced to sell their produce because of the closure of ginning factories across the country.
For India the market had expanded earlier, during the last six months when the spinning mills were active in response to a huge shortage of cotton yarn from last year’s lockdown restriction. There was a sharp upside rally in cottonseed/oil and oilcake prices between November 2020 and early part of April 2021. Bangladesh has increased its cotton import forecast for marketing year (MY) 2021/22 to 7.6 million bales despite the economic slowdown caused by the COVID-19 pandemic. This was possible due to improving requirement for the locally spun yarn. The country’s cotton consumption for MY 2021/22 is now forecasted at 7.9 million bales, which is approximately the same consumption levels as MY 2020/21, due to sustained demand for yarn, fabric, apparel, and garments as the world economies slowly recover from the pandemic.
There are optimistic hopes for India that demand for cotton products in near term shall be robust from the global economic rebound amid concerns over chances of a significant reduction in the ending inventory. The CAI has kept its consumption estimate for the current crop year at 330 lakh bale in the previous month. Last season's consumption was 250 million bales due to disruptions caused by the Covid-19 epidemic. This indicates that there can be a reduction in the carryover stocks year on year because of increase in the consumption level.
The Grass is Green, longer term price view is positive:
As chances of edible oil complex to remain firm remain high, prices of cotton wash oil may continue with the firm trend, since there is higher demand for cotton seed for crushing purpose. Reducing arrivals of raw cotton because of the season condition, and limiting cottonseed inventory lying with the ginners shall imply lowering supply availability in the market. India’s production for the 2020-21 (Oct-Sep) season, is around 36 million bales. Out of this, nearly 33 million bales, or 92% of the stock, has already arrived in the market. Therefore the tight supply situation in cottonseed is expected to continue in the coming months considering firm demand outlook for the commodity. Also, the new season for cotton will start only in October – so a long time before the supply availability increases.
Another key aspect to note is that consumption of cotton cake may shift towards mixing in the animal feed rations as soy meal is quite expensive. This additional improvement in demand outlook has increased the possibility of higher price levels in forthcoming months. Therefore, as the lockdown restrictions are not easing, trading activity shall remain disturbed which can restricted the upside but over a period of time when situation starts improving, we can expect upside price rallies in the cotton complex markets.
In the derivatives market, Kapas futures at NCDEX may not sustain below 1200 this month while Cotton Cake (Cocud) futures shall continue finding strong buying support between 2350-2400 levels. Similarly cotton 29mm at MCX shall be attracting buying interest whenever prices go near or below the 21000 level.
