Cotton Update

Cotton – looks bearish on seasonal arrivals and forecast of lower export and domestic consumption

19th October, 2016

Cotton Update Price Performance - Monthly

• MCX- Cotton and NCDEX- Kapas fell 2.7%

and 4.13% respectively in last one month on

lower demand from the industrial users like

ginners, cotton mills and textile units.

• Moreover, due to prospects of higher crop

production in the country the prices of

cotton have been decreasing during the last

2 months – August and September.

2

860

880

900

920

940

960

980

1000

1020

17000

18000

19000

20000

21000

22000

23000

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

Monthly Average Close Price- Cotton-MCX & Kapas - Ncdex ( 2016)

MCX-Cotton (R/bales) NCDEX-Kapas (R/20kg)

• Earlier, cotton prices have touched three years high during July and August 2016 on

reports of lower cotton acreage in the northern states of Punjab and Haryana.

• With the increase in cotton price, cotton acreage in the country recovered during Aug-Sep

on above normal and well distributed rains in cotton growing states.

• As per officials of the Nagpur-based Central Institute for Cotton Research (CICR), the yield

forecasts for cotton will increased by 10% due to sudden spell of heavy rains in cotton-

growing regions of Maharashtra, Gujarat, Telangana and Karnataka during last weeks of

September but there are every chance of delay in arrivals.

Cotton Update Price Performance - Quarterly

3

(6.24)

26.19

(2.31)

(6.66)

6.11 7.34

-10

-5

0

5

10

15

20

25

30

Q1 Q2 Q3

Cotton Price - Quarterly Change %

MCX ICE

• During Q2( April- June), MCX-cotton

prices in India surged by whopping

26% following a sharp decline in

output estimates for the current

crop year (2016-17) coupled with

non-availability of good quality

cotton.

• Demands from domestic mills were

good and supply was tight as

stockists and traders are not willing

to sell at lower levels on anticipation

of better price realization.

• International cotton (ICE cotton futures) have increased during Q2 and Q3 despite

the China continue to sell their massive cotton stocks. During this period, world

cotton was facing a deficit with demand outstripping the supply and there was

forecast of lowest ending stocks in five years.

Cotton Update Domestic area under cotton fall

4

As per latest estimate by government, cotton is

planted in 102.55 lakh hectares (lh) in the

country, down by 11.6% against 116 lh last year as

on 23 Sep against normal acreage of 120.3 lh.

The area under cotton is lower this year because

farmers have sown other crops like maize and

pulses due to low profits, increasing vulnerability

to pest attacks, and declining groundwater levels

due to two years of drought in the country,

especially in the northwest.

State 2016-17 2015-16 Change (%)

Maharashtra 38,06,000 38,24,000 -0.5

Gujarat 23,80,000 27,61,000 -13.8

Telangana 12,30,000 16,73,000 -26.5

Madhya Pradesh 5,99,000 5,47,000 9.5

Haryana 4,98,000 5,81,000 -14.3

Rajasthan 4,83,000 5,39,000 -10.4

Karnataka 4,05,000 5,75,000 -29.6

Andhra Pradesh 3,85,000 4,06,000 -5.2

Punjab 2,56,000 4,50,000 -43.1

Odisha 1,36,000 1,25,000 8.8

Uttar Pradesh 28,000 18,000 55.6

Tamil Nadu 17,000 21,000 -19.0

Total 1,02,23,000 1,15,20,000 -11.3

In Gujarat, the top cotton producing state, the crop had been sown across 23.8 lh, down

13.8% from a year ago while in Maharashtra, the largest area under cotton, the acreage

was at 38.0 lh, slightly down from around 38.2 lh a year ago.

In Punjab, the area under the cotton crop was at 256,000 ha, down a sharp 43.1% on year,

while in Haryana, it was down 14.3% at 498,000 ha. The acreage in Rajasthan was at

385,000 ha, down from 406,000 ha a year ago.

Cotton Update Domestic Production Estimate

As per, the Cotton Association of India (CAI), the

trade body has retained the cotton crop estimates

for the year 2016-17 season at 336 lakh bales (of

170 kg each) almost same as last year production.

According to CAI, in 2016-17, production in the

central zone, which includes states of Gujarat,

Maharashtra, and Madhya Pradesh, is estimated at

195 lakh bales, against 185 lakh bales last year.

5

353

342

398

390

338 336

100

105

110

115

120

125

130

330

340

350

360

370

380

390

400

410

2011-12 2012-13 2013-14 2014-15 2015-16* 2016-17#

Production (Lakh Bales) Area (Lakh Hac)

Source: CAB, Angel Commodity Research

Yearwise Cotton Area & Production

In the northern zone, which includes Punjab, Haryana, and Rajasthan, the cotton production may rise

to 43 lakh bales from 41 lakh bales a year ago, while the south zone is expected to produce around 92

lakh bales, compared with 108 lakh bales a year ago.

Gujarat is expected to produce about 88 lakh bales in 2016-17 down from more than 1 lakh bales last

year while Maharashtra may produce 87 lakh bales in the current crop year from 78 lakh bales in

2015-16. Telangana and Andhra Pradesh is estimated to produce lesser crop this year at 48 lakh bales

and 15.5 lakh bales respectively.

CAI estimated total cotton supply for the cotton season 2016-17 at 398 lakh bales, while the domestic

consumption is estimated at 309 lakh bales which leaving an available surplus of 89 lakh bales.

Cotton Update Domestic Consumption steady, exports down

6

As per USDA latest monthly report,

India's cotton consumption is projected to

remain stable at 5.2 million tonnes in 2016-17.

The consumption is set to decrease because of

mills might increase the share of other fibers in

cotton-blended yarns due to higher and

fluctuating prices of cotton in domestic market.

For 2016-17 season, exports of cotton from

India, the second largest exporter, are forecast to

fall by about 35% to 820,000 tons.

The fall is exports is attributed to expectation of

lower demand from China and trade

disturbances with the neighboring Pakistan.

4,700

4,800

4,900

5,000

5,100

5,200

5,300

5,400

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Sep Oct

India Cotton Consumption ('000 tonnes)

Source: USDA

500 700 900

1,100 1,300 1,500 1,700 1,900 2,100

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Sep Oct

India Cotton Export (1000 MT)

Source: USDA

Cotton Update World Cotton Production Forecast higher compared to last year

7

As per latest USDA monthly report, world cotton

production in 2016/17 is forecast at 22.4 million

tons (mt), slightly above the September projection

and nearly 7% higher than last year production

(2015/16).

Cotton production is projected to increase in three

of the four top producing countries except China.

Production in India is forecast at 5.77 mt, up from

2015/16, while China cotton production is

projected to decrease by 4.6% to 4.6 mt.

In 2016/17, U.S. production increase to 3.5 mt

while Pakistan’s cotton crop is projected to expand

to nearly 1.8 mt this season Vs 1.5 mt in previous

year. The world cotton yield is projected at 760 kg

per hectare in 2016/17, equal to the 5- year

average.

20,000 21,000 22,000 23,000 24,000 25,000 26,000 27,000 28,000

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Sep Oct

World Cotton Production ('000 tonnes)

Source: USDA

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Ind

ia

Ch

ina

US

Pak

ista

n

Bra

zil

Au

stra

lia

Uzb

ekis

tan

Top Cotton Producing Countries ('000 tonnes)

Source: USDA

Cotton Update Global cotton stock to decrease

8

• The latest USDA, cotton estimates for 2016/17

project world cotton ending stocks to decline by

9.6% from the previous season to 19 million tons

(mt). Thus, global cotton stocks would drop to

their lowest level since 2011/12 due to back-to-

back reductions in world cotton.

• China continues to reduce the surplus cotton

accumulated during the 2011-14 seasons by

auctioning from the National reserves during May-

September 2016 and plans to resume auction

beginning March 2017. Thus, cotton stock to

decrease by 17.4% to 10.5 mt in 2016-17 season.

• China’s stocks at the end of 2016/17 are projected

to account for 55% of the world total. Meanwhile,

stocks outside of China are forecast to experience

modest increases of 2.2% to 8.55 mt.

20,058

22,493

24,286

21,033

19,554 19,018

19,000

20,000

21,000

22,000

23,000

24,000

25,000

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Sep Oct

World Cotton Ending Stocks (1000 MT)

Source: USDA

8,000

10,000

12,000

14,000

16,000

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Sep Oct

Cotton Ending Stocks (1000 MT) - China Vs Outside of China

China Outside of China Source: USDA

Cotton Update Limited World Consumption Growth forecasted for 2016/17

9

• Global cotton consumption is forecast to increase

by 1.43% in 2016/17 to 24.4 million tons (mt) as

cotton continues to face price competition from

synthetic fibers.

• China continues to lead the world in cotton mill

use and projected at 7.73 mt or 109,000 tons from

last season’s estimate. India and Pakistan, is

expected to decline slightly.

• India is forecast at 5.20 mt in 2016/17, while

Pakistan is expected to use 2.22 mt, both about

1% lower than the previous year.

• However, cotton consumption in Turkey,

Bangladesh and Vietnam will increase by 1.52,

4.89 and 6.78% respectively. These three countries

account for a combined 16% of total consumption;

this compares with 10.5% just 5 years ago.

23,500

23,700

23,900

24,100

24,300

24,500

2016/17 2016/17

2012/13 2013/14 2014/15 2015/16 Sep Oct

World Cotton Consumption ('000 tonnes)

Source: USDA Source: USDA

0

2,000

4,000

6,000

8,000

10,000

Ch

ina

Ind

ia

Pak

ista

n

Turk

ey

Ban

glad

esh

Vie

tnam

Un

ited

Sta

tes

Top Cotton Consuming Countries ('000 tonnes)

Source: USDA

Cotton Update Price outlook

10

• Cotton harvest has started and new kapas has arrived in the market. It will still be time

before peak arrivals start after diwali during the months of December and January next

year due to late harvest expected in Gujarat and Maharashtra.

• Cotton prices in futures market is trending down since one month however, still on higher

side at Rs.19,650/ bales. The prices are 25% higher as compared to last year prices during

the same period.

• The major factors which will decide cotton prices in coming months are the export and

domestic mill demand for Indian cotton. As per CAI and USDA, the cotton supply in the

domestic market will be sufficient as the export and consumption will be lower during the

current cotton season.

• Total availability of cotton in the country is pegged at 398 lakh bales versus estimated

consumption of 309 lakh bales. The export will be declined by 40% in 2016/17 to 849,000

tons compared to 12.55 lakh tons last year.

• We expect MCX cotton prices (CMP: Rs.19,640/bale) to ease a bit towards Rs. 18,500

while NCDEX Kapas (CMP: Rs.870/20 kg) can move lower towards Rs. 800 during the peak

arrival season in November and December.

Cotton Update

Published in FY 2012. © Angel Broking 2011-12

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11

RiteshKumar Sahu

Analyst- Agri Commodities

Landline: 022 3935 8165