NEW DELHI: After a year of economising, the world is again willing to spend on new clothes, curtains, towels and upholstery. That has created a rich profit opportunity for India’s cotton farmers, who are benefitting from brisk exports and rising local prices as textile companies rush to buy raw material.
India is the world’s second largest cotton producer and it offers best rates in international market. The country’s cotton acreage crossed a record 10 million hectares in 2009 despite the poor monsoon, though the dry weather affected yields.
“Cotton exports are progressing at a good pace. India has already exported 3 million bales till now mid-way in the season. Last year, India had exported 5 million bales in the full year,” said textile commissioner AB Josey.
Total exports at the end of the 2009-10 season are expected to touch 6.5 million bales, according to officials at the industry body Cotton Association of India.
China is India’s top customer for cotton, which in turn is the biggest garment and textile exporter to the United States. The USA, the world’s top cotton producer, exports cotton to China and imports textiles.
“Even though we started the new marketing season (October 1, 2009-September 30, 2010) with enough cotton to last three-and-a-half months, and also produced more than 30 million bales, prices are holding up. That is because demand for textiles has recovered sharply in the last few months and companies are ramping up production to meet orders. That has raised the demand for raw material,’’ said a leading broker in Mumbai.
However, there is no scramble in the local market, which would have otherwise artificially inflated prices. “Everyone knows that a good crop will again come in October 2010. So there is no panic buying or selling,’’ he added.
For farmers it has been a good season till now and they have been steadily bringing their harvest to the mandis. Prices are significantly above the minimum support price. That is a big difference over last year, when textile companies had no export orders, pushing farmers to make distress sales, and forcing state and Central governments to procure cotton to alleviate their crisis.
The biggest threat to India’s exports now is the volatile price of cotton futures on New York Mercantile Exchange. If Nymex futures dip sharply, that would make cotton from the USA, world’s top exporter, more affordable for buyers in China as well as Indian textile companies, who might be tempted to import from overseas.
“Luckily for India, the US has already sold three-quarters of its crop. But reaction from Chinese buyers is still a worry. Right now we are selling at a significant discount to American and even West African cotton. If this discount gets reduced then Chinese importers will suddenly have a lot more choice of suppliers in the market, other than India,’’ said a leading exporter in Mumbai.
International cotton prices have also had a strong inverse correlation with the dollar since the onset of the credit crisis in September 2008, meaning that cotton prices have tended to fall when the dollar rises and that cotton prices have tended to rise when dollar falls.