IndiaΆs cotton area could drop up to 7% this year, CAI official says. Higher yields foreseen by USDA last month resulted in bigger production estimate. Cotton area may decrease over the long-term.
Cotton futures closed mixed Wednesday after hitting new intraday highs for the move, with spot July finishing marginally lower to post the only loss among actively traded contracts.
July eased off seven points to settle at 65.78 cents, in the lower third of its 100-point range from down 35 points at 65.50 cents — the overnight low — to up 65 points at 66.50 cents. It took out the December swing high of 66.31 cents but closed below that.
December edged up 12 points to settle at 65.96 cents, its highest finish since early July 2015 and its fifth consecutive closing gain. It closed above spot JulyΆs finish and around the middle of its 103-point range from 65.42 to 66.45 cents.
Fresh weakness in U.S. dollar index futures and higher crude oil prices amid broad gains in commodities contributed to support in cotton. Profit-taking may have weighed on July.
Volume was estimated at 62,787 lots, compared with 62,970 lots the previous session when spreads accounted for 37,826 lots or 60%, EFS 101 lots and EFP 88 lots. Options volume totaled 9,232 calls and 7,848 puts.
On the international scene, a delayed arrival of monsoon rainfall and fear of pest attacks could shrink the area planted to cotton this year in India, the worldΆs largest cotton producer, Dow Jones Newswires reported, quoting a trade body.
The cotton area could drop up to 7% from last yearΆs 11.8 million hectares (29.16 million acres), said Dhiren N. Sheth, president of the Cotton Association of India.
The rising incidents of white fly attacks could contribute to farmers switching to other crops, he said. The arrival of rains, which has been delayed by about nine days, also is playing a role, he said.
However, the weather departmentΆs prediction of ample rainfall has improved the outlook for food grain production this year, he added, and could improve cotton yields.
The USDA last month projected a rebound in per-acre yields from the 10-year low in 2015-16 would more than offset a slightly lower cotton area and hike IndiaΆs cotton production in 2016-17.
Higher yield projections have been attributed to a combination of better crop, pest and weed management practices along with a more “normal” monsoon after two consecutive years of deficit rain.
Planting decisions are driven largely by prices, an earlier report by the U.S. agricultural attach in India noted, but added that production costs of competing crops, water availability, central-state government support policies and a timely monsoon also are crucial factors.
The USDAΆs supply-demand estimates last month put IndiaΆs 2016-17 production at 28 million bales, up 4.5% from the previous year.
While the USDA post in India estimated minimal acreage changes in the short-term, the report indicated the cotton area could decrease over the long-term as rising food demand and government efforts to encourage food crop production prompt a shift to other crops.
Sources suggested the only reason to maintain cotton acreage would be to shift from viewing the crop for its fiber and instead focusing on its protein, oil and feed (hull) use.
Several central government agencies and research institutes have emphasized cotton productivity. Various production systems — high density plant populations with short-duration varieties, intercropping with legumes and mechanical picking under rain-fed conditions — have been undertaken on a trial basis to support farmer income diversification.
Meanwhile, some expectations for U.S. upland export sales for shipment this season range from 75,000 to 125,000 running bales for the week ended June 2, compared with 124,900 RB the previous week.
Futures open interest expanded 3,355 lots Tuesday to 211,393, with JulyΆs down 6,195 lots to 75,165 and DecemberΆs up 7,527 lots to 113,056. Cert stocks grew 3,626 bales to 116,085. Awaiting review were 3,291 bales.
