High Area And Production Expected; Yields to Remain Low: USDA Cotton Estimates
United States Department of Agriculture has recently released its cotton projection for the monsoon year 2017-18. Referring to Indian agriculture ministry’s statistics, the report said that “planted area reached 11.96 million hectares as of 25 August, 2017 compared to 10.25 million hectares in monsoon year (MY) 2016-17.”
Although planted area is 17 per cent higher than last year, it is only six per cent higher than the five year average of 11.24 million hectares. Post forecasts Monsoon Year (MY) 2017-18 area at 12.2 million hectares had been projected. While farmers continue exhibiting strong preference for cotton this season as seed cotton prices remain higher than competing crops.
The yield forecast for all India cotton acreage is 536 kg per hectare, which is lower from last year as erratic monsoon rains, unfavourable temperatures, and pest pressure created suboptimal conditions. On August 18, the Cotton Advisory Board (CAB) revised the area and production estimates for MY 2015-16 and MY 2016-17. Post has adopted the revised acreage and production numbers.
For MY 2017-18, owing to the large acreage increase and prospects of a larger crop, Cotton Corporation of India (CCI) anticipates buying seed cotton under the Minimum Support Price (MSP) program in the latter part of the season.
Policy Moderations
Trade sources indicate that cotton consumption is expected to remain relatively flat as mills focus on manufacturing blended yarns and fabrics with a higher percentage of man-made fibre to offset cotton price volatility.
The Textile Commissioner’s Office (TCO) revised monthly cotton consumption data for MY 2015-16 and MY 2016-17 and post has adopted the numbers according to various micro factors of national and international markets. Policy changes to the goods and services tax supports cotton industry. The new goods and services tax (GST) rates announced are in favour of the cotton trade. The GST rate for cotton (fibre, waste, yarn and fabric) is set at five per cent, while GST rates for man-made products (fibre and yarn at 18 per cent and fabric at five per cent) are higher. Input costs for manmade fibre (MMF) products will become higher affecting the small- and medium-sized synthetic textile manufacturers. The higher tax on MMF yarn will make MMF fabric expensive and may prompt higher imports of MMF fabric from countries like China.
Domestic Moments
The internal movement of cotton will be slightly cheaper as logistical costs becomes more standardized across states and several indirect taxes are subsumed into the GST. Freight cost, by itself, will not directly influence imports as quality issues persist and mills continue to prefer imported cotton. Stocks of cotton and cotton yarn remain high according to data provided by the TCO, combined mill stocks reported in May and June were eight million 480 lb. bales (10.26 million 170 kg bales per 1.7 mmt) and were the highest since MY 2009-10 for the same period. Similarly, the TCO reported cotton yarn stocks for June 2017 were significantly higher than same period last year and affirms the inability of mills to offload large yarn inventories as domestic demand remains weak and while cotton yarn and fabric exports decline.
The Export Choices
As of May 2017, Bangladesh remained the top cotton export destination, followed by Pakistan, Vietnam and China. Export shipments have fallen sharply compared to MY 2015 as Indian cotton prices remain higher than international prices. Cotton yarn exports have also dropped considerably due to weak demand. Bangladesh, China, Turkey and Pakistan remain the top cotton yarn export markets. The FAS Mumbai MY 2017-18 import forecast is 1.5 million 480 lb. bales (1.9 million 170 kg bales per 3, 26,600 mt). This is 200,000 480 lb. bales higher than the USDA official forecast. Even though a large crop is expected, imports will continue to remain strong as mills import for processing and re-export to cover export commitments. In MY 2016 per 17, imports are forecast at 2.65 million 480 lb. bales (1.35 million 170 kg bales per 230,000 mt). Australia and the United States remain top exporters to Indian mills.
