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ANALYSIS: cotton selling below
government price despite TCP's entry
By S A AZIZ SHAH
KARACHI : Except for some scattered rains in a few cotton
areas in Sindh and Punjab the weather has been very conducive
in the past two weeks. So, the prospects of a bumper cotton
crop have brightened up considerably.
Some optimistic estimates place cotton crop size at (plus)
14.0 million 375-lb bales, while moderate circles place it
between 12.5 and 13.0 million local bales.
However, the last leg of the crucial period for cotton crop
safety up to October 10 still remains to pass and it is hoped
that it would pass peacefully.
The pace of arrivals of seed-cotton also confirms the
harvesting of a real bumper crop, should the crucial period
pass away peacefully.
Field reports indicate that quality of cotton is also very
good. By the end of this month, seed-cotton equivalent to
about 2.0 million bales would have reached the ginneries and
the local spinner--buyers--are almost lifting all pressed
bales.
Realising the importance of textile for national economy, the
present government has met Textile Industry's old demand of
establishing a separate Textile Ministry.
Reportedly, Pakistan Cotton Standards Institute (PCSI), which
was made almost redundant, has now been put under the umbrella
of Ministry of Textile. This is a wise decision and the cotton
and textile trade has welcomed it. Now, the Textile Ministry
should take full use of PCSI in implementation of Cotton
Standardisation System at ginning stage which would go a long
way in improving the quality of lint cotton.
The technocrat / economist Prime Minister of Pakistan should
immediately implement the Cotton Grading / Standardization
system to ensure better return to cotton farmers and better
quality cotton for textile industry.
The implementation of Cotton Grading System would benefit the
growers to the extent of Rs 5.0 billion yearly besides other
benefits to the textile industry and the economy of Pakistan.
Lint cotton prices in the local market remained under selling
pressure during last week on reports of bumper cotton crop and
larger arrivals of seed-cotton in factories. Prices of lint
cotton and seed-cotton plunged to lower levels.
The government, taking notice of the situation, directed
Trading Corporation of Pakistan (TCP) on September 23 to start
purchases of lint cotton from ginneries at Rs 2,159 per maund
of 37.324 kg ex-gin (equivalent to 44.60 cents /lb) for Grade
III cotton with staple 1-1/32 inches and micronaire 3.8 - 4.9
from September 24.
The news flashed in cotton market but lost its charm when
ginners continued to purchase seed-cotton at lower than
government price of Rs 925 per 40 kg and continued selling
lint cotton at below government price of Rs 2,159 per maund.
On Saturday, lint cotton of different stations of lower Sindh
was sold at rates ranging from Rs 2,000 to Rs 2,125 per maund,
depending on quality.
On the same day Karachi Cotton Association fixed spot rate for
Grade III staple 1-1/32 inches at Rs 2,090 per maund ex-gin.
Despite the fact that quality of most of the cotton is above
TCP's Purchase Standard Grade III, the ginners were selling
even at rate lower than TCP rate of Rs 2,159 per maund.
This meant that the growers and ginners either did not have
confidence in TCP or TCP had entered the market at wrong time.
One ginners said that when the market would break the barrier
of Rs 2,000 and selling pressure would mount "then we would
offer cotton to TCP at Rs 2,159 per maund because about Rs 59
is the cost of new hessian and hoops with four side coverings
which is the requirement of TCP, and Rs 100 is the cost of
delay in payments, possible deductions and other unaccounted
for expenses".
Presently, local mills are quite active in lifting cotton on
price and quality grounds. Hence there is no piling up of
unsold stocks. However, cotton trade's earlier impression of
depression in cotton market down to the level of Rs 1,800 or
even lower does not hold good and workable.
This season the quality of cotton is so good that almost 75
percent cotton would command premium over Grade III. By not
paying any premium for better quality cotton, the government
on the one hand is discouraging production of better quality
cotton and, on the other, is usurping the right of premium to
growers. In all cases, growers are encouraged to produce
better Grade / quality cotton by paying due premium but in
Pakistan, Government acts against this international rule.
Nobody can understand when the Government verbally supports
the growers but actually works against their interests.
The main reason why our economy is not performing well is that
our agriculture sector and growers are grossly neglected. The
potential economist Prime Minister Shaukat Aziz should give
top priority to agriculture sector / growers and make a real
breakthrough in our economy.
This would not only make Pakistan's economy strong but would
simultaneously reduce poverty level considerably. Why the
elected representatives of the people in both houses (
Assemblies and Senate ), largely coming from rural areas, and
the associations of growers sit and sleep over matters of
agriculture and rights of agriculture community? If cotton
prices in international market go down the level of 40 cents
per pound and Pakistan produces a bumper crop of 13 million
bales or more, which appears possible, then a huge selling
pressure of about two million bales may develop which may be
beyond the capacity and ability of TCP.
Another viable alternative to this cotton crisis may be the
restoration of Cotton Hedge Market under Karachi Cotton
Association.
This would on the one hand relieve TCP and the Government of
the cotton pressure and on the other hand provide a better
outlet for marketing of cotton to all stakeholders of cotton.
This season, exporters are also tightening up their muscles to
play a larger role in export of raw cotton and reportedly some
20,000 bales have been committed in export at FOB Karachi
prices ranging between 46 and 51 cents / lb. In view of the
downdrift in New York cotton futures, inquiries have been
reduced and asking rates have been lowered.
New York cotton futures are still looking for definite
direction as the world cotton crop is passing through very
crucial period. NY futures are dancing to the tunes of
sensitive weather reports.
However, within the next fortnight, the position of cotton
crop in all major cotton producing countries of Northern
Hemisphere would become clear and then cotton prices would
stabilise.
October contract finished at 49.40 cents, down 81 C/Pts, and
December contract closed at 47.02 cents, down 191 c/pts.
Again, there was a report of another hurricane likely to touch
US coasts. US crop is now estimated at plus 20 million 480-lb
bales and its consumption around 5.6 million bales.
US has fixed export target of 12.0 million bales and more than
5.5 million bales are reported to have been committed in
export.
US imports of apparels fell by 2.2 percent in July, 2004, when
recovery in June proved to be short-lived. US imports of
apparel from China registered a robust increase of 25.25
percent in the first half of 2004.
China's cotton production is estimated at 29.5 million 480-lb
bales by USDA but other sources place it down around 28.5 to
29.0 million bales and consumption one to two million down
from early estimate of 34 million bales. Foreign reports
indicate some problems in China's textile industry.
Although, stocks of raw cotton with textile mills are quite
low--almost half of last season--yet funding for cotton buying
remains restricted. Mills consider moderate purchasing quite
necessary.
Yarn prices are reported to have touched the bottom in China
and rise in prices is predictable. Yarn of 32s is selling in
Shaoxing market equivalent to Pak Rs 620 per 10-lb bundle.
Mills agree that yarn prices have recently improved and stocks
have been reduced considerably. Some mills agree that there is
good demand for pure cotton yarn and they can reduce polyester
consumption due to higher prices. Low prices of cotton would
exert pressure on polyester prices.
China has recently made a major breakthrough by developing 8
varieties of transgenic cotton which have been released for
commercial sowing.
In 1996, China had introduced sowing of transgenic ( Bt.
Cotton) on about 50,000 hectares and in 2003 the area had
increased 40 times to 2.13 million hectares.
This season, the area under Bt. Cotton is estimated at around
4.67 million hectares, almost 34 percent more than Pakistan's
total acreage under cotton this season.
China would be producing some more than 20 million bales of
Bt. Cotton and each acre of land would give extra benefit
equal to Rs 1000 to Rs 1100 to the farmers.
Latest reports from India indicate a record high crop of some
21.3 million 375-lb bales--16.41 million 480-lb bales--this
season against 17.7 million local bales produced last year, as
assessed by Cotton Advisory Board of India.
Official estimates are for 19.0 to 19.5 million bales. This is
all because of very cotton friendly weather in India. If all
things go smooth, the four top countries would be producing
record high crops viz, China 29.0 to 30.0 million bales, USA
20.90 million bales (Second highest), India 14.84 to 15.23
million bales, and Pakistan 10.15 million bales of 480-lb.
World production is estimated around 106.75 million bales.
Until the time, clear pictures of crop sizes emerge from
prominent cotton producing countries, cotton prices would
remain fluctuating on positive and negative rumours / reports.
Only in the middle of next month, cotton prices might
stabilise.
Curtesy: Business Recorder
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