(Reuters) - Cotton prices in India are expected to trade lower this week on brisk sowing due to ample and early rains in leading cultivating areas, though a squeeze in local supplies amid good demand from local millers is seen limiting the downside.
Farmers started planting well ahead of their normal schedule this season because of heavy and early rains. Cotton had been planted on 9.24 million hectares as of July 11, compared with 6.52 million hectares in the same period a year earlier, farm ministry data showed.
Traders expect cotton yields to improve this season due to timely rains and the use of certified seeds.
"Sowing is progressing on a robust pace because of heavy rains. Given the weather conditions and increased usage of the certified seeds, yields are expected to increase," said Arun Kumar Dalal, a trader from Ahmedabad in Gujarat.
India, the world's second-largest cotton grower, could increase output in 2013/14 as hefty monsoon this year encourages farmers to plant more acres and extra moisture swells yields, industry experts said.
The timely rains and the fast pace at which sowing is taking place bode well for a good crop, the Cotton Association of India said in a statement.
The price of the most-traded domestic spot Shankar-6 variety was steady at 42,400 rupees per candy of 356 kg after rising more than 4 percent since the start of the month, data from the Cotton Association of India showed.
Supplies have declined sharply in the domestic market as the season has drawn to a close and farmers are busy in the new planting season with just around 15,000 bales of 170 kg each coming into the market, traders said.
"Supplies are likely to remain tight until fresh arrivals in October," said Dalal.
The weakness in the rupee has made Indian cotton, as well as cotton yarn, competitive in the global market. The rupee had hit a life low of 61.21 against the dollar on July 8.
The most-active July cotton futures contract ended down 0.56 percent at 19,540 rupees per bale on the Multi Commodity Exchange. It had made a high of 20,150 rupees on July 10, a level last seen on March 18.
India raised the 2013/14 support price of cotton medium staple to 3,700 rupees per 100 kg and 4,000 rupees for the long staple variety.
The Cotton Corporation of India (CCI) offered to auction 19,800 bales on Monday, according to a notification on its website. In three e-auctions held by the CCI between July 8 and July 10, 93,900 bales were sold.
In New York, the December cotton contract on the Intercontinental Exchange was down 0.16 percent at 84.94 cents per lb at 1254 GMT
