WHETHER or not, the cotton crop is short remains unclear but spinners’ panic buying last week and the consequent price flare-up reflects that all may not be well with the cotton economy, at least for the near-term as the mid-season conflicting reports suggest.
Cotton prices have soared from the seasonal lows of Rs1,425 to Rs2,100 per maund without 15 per cent sales tax and they have touched the high mark of Rs2,200 per maund.
“The crop may be short of the target by 25 to 30 per cent as the late pest attack in some major growing areas of Punjab has damaged it”, some of the leading ginners claimed.
All the four components—, growers, ginners, spinners and the TCP, associated with the cotton trade have different views about the size of the crop and are working in line with their future perceptions.
The growers, who have sold phutti (seed cotton) at the lowest rate of Rs650 against the official support price of Rs780 per 40 kg, witnessed a sudden price flare-up followed by reports of a short crop and managed to sell their produce at Rs1,000 per maund for a short period before the pause in mill buying. But now they are holding on to their stocks after prices have fallen to Rs900 or slightly below this rate.
“ An extent of the damage to the standing crop in some of the areas may well be had from the fact that the per acre yield there have fallen to 2 to 4 maund as compared to normal production of 20 maunds”, progressive growers said.
After having pushed prices to Rs2,100 per maund in a quality war, spinners had a second thought on their export parity levels and they not only stopped indulging in the unfair business but also curtailed their daily purchases to outwit ginners. However the stalemate continues.
Ginners who are largely dependent on the inflow of phutti from farms to their ginneries have also realized the spinners’ wisdom of chasing prices higher and out to outwit growers on the price front. But growers are not willing to sell below Rs1,000 per maund, at least for the near-term.
The TCP did not join the race to grab the floating stock as it has already purchased about 0.220m bales to support the market and ensure a fair price to growers and have watched the price battle among the spinners belonging to big groups and the weaker ones.
However, after a week of rising prices followed by conflicting reports about the production losses, sanity returned to the warring groups and so did to the market, although export parity levels for the value-added textiles were badly disturbed and may remain uncompetitive until world prices and demand rebound.
The next couple of weeks are very crucial for the market trend and if spinners again resort to speculative buying without having a fair idea of the crop, there could be a serious disequilibrium in the cotton economy despite the fact that crop may not be below the 9.5 or 10m bales mark, most cotton specialists believed.
Unconfirmed reports from the Punjab cotton belt reaching here say that some of the leading spinners are buyers around Rs2,100 per maund without 15 per cent sales tax, and ginners continued to entertain higher prices.
“It is pretty difficult at this formative stage of new crop picking operations in the Punjab cotton belt to form an opinion about the size of total production”, cotton analysts said.
The maiden picking operations have just started in the Punjab cotton belt, which on an average produces over 8m bales of the total crop of 10m or odd bales.
But spinners scramble to grab the ready floating stock irrespective of the ginners’ asking prices which reflects that they may have a fair idea of the damage to the standing crops.
Official sources still sticking to the revised production target of 10.2m bales claimed that the late pest attack is well below the economic injury level and the crop may not be that short as being speculated by the textile industry.
“The current price flare-up may be speculative as by the end of the current month, the size of the crop will be clear after second picking operations starts in the upper Sindh and southern Punjab cotton belts”, they said.
The cotton and phutti prices during the last two months have fallen to the seasonal lows of Rs1,425 and Rs600, respectively but the current scare of a short crop caused a strong rebound to Rs875 to Rs.2,100.
“Spinners having a fair idea of export markets in the wake of Afghan war and falling export orders may not be that fool to push lint prices to such a high, they may use a secret weapon to recover the losses, if any in the bargain in the coming months”, said a leading broker.