India's cotton sector is pitting its stakes on a bumper production in 2007-08.
Despite a slow performance by cotton textile industry in the past two quarters, a bumper cotton production during the 2007-08 season has raised interests on how cotton will behave price-wise over the next two months.
Another good omen for the industry is that India will have surplus cotton this year. Cotton Advisory Board recently has put the 2007-08 crop estimation at 300 lakh bales plus. The domestic cotton trade has pitched for an even higher crop size of 312-325 lakh bales.
Cotton Corporation of India put its initial crop estimation for 2007-08 at 310-312 lakh bales.
The CCI crop data point to a five per cent crop area rise at 95 lakh acres from last year's 91 lakh acres leading to a six per cent increase in production.
The higher cotton output anticipated for 2007-08 gives out the indication that the domestic prices will not be high and at the same time, it will enable the country to export more cotton.
Analysts said as against 55 lakh bales export in 2006-07, it would be around 60 lakh bales or even more in the new season.
Whereas the private trade estimates the exports in the new season to be around 70 lakh bales, CCI, which exported 1.60 lakh bales in 2006-07, is expected to double its export this year.
Already 5/6 lakh bales of cotton of 2007-08 crop had been committed for December 2007 shipment at Rs 19,500-19,800.
Bulk of cotton export last year was for China, followed by Bangladesh, Pakistan and for other S-E Asian countries. This year too, the shipment to China would dominate total cotton export.
The cotton export projection coupled with the paling price parity between international cotton and India (67-69 cents per pound at New York Futures and the Rs 19,500-20,000 per candy price quote in domestic market) has, however, unnerved the domestic spinners, most of whom are already facing severe liquidity crunch in the yarn market.
Huge cotton export is expected this year as there has been a strong demand for cottons (for 20s-40s count yarn especially) produced from Gujarat and these varieties are specially preferred by China and Pakistan.
Improved port logistic between India and China has rendered freight for raw cotton to China cost-competitive and a shipper can move one cotton container of 165 bales at a freight of $200-250, whereas within India, the cost of transporting 100 bales from North to a unit in south India by road would be anything from Rs 37,000 to Rs 42,000.
This and the increased recognition in international market of India's cotton being free of contamination led to India's turning into a net cotton exporter.
