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ANALYSIS: aggressive buying halts
declining trend in cotton prices
S A AZIZ SHAH
KARACHI: According to Pakistan Cotton Ginners' Association
(PCGA) report, seed-cotton (phutti) arrivals up to September30
have registered a robust increase of 85.90 percent (Sindh
59.83 percent and Punjab 103.45 percent) over same period of
last year. This does not mean that the same increase rate will
be sustainable till the end of the season.
The increased arrivals dominated in all the 29 cotton
districts (Sindh 9 and Punjab 20), except Bahawalpur district
of Punjab which is the main cotton producing district.
At present there is a general consensus among all cotton
stakeholders that the size of the current cotton crop appears
to be much larger than last year, but differ on the extent of
increase which runs between 25 and 40 percent. Some cotton
circles think that the impact of heavy recent rains in Sindh
and late monsoon rains in Punjab last week have impacted
negatively, to some extent.
The crucial month of September is over but late monsoons are
there in Punjab. In cotton trade galleries, some whispers were
heard about worries of the health of cotton crop in Punjab.
This writer also received reports of attack of boll worm in
some areas of Bahawalpur and Bahawalnagar districts, besides
reports of reddening of cotton plants in some areas of Lower
Sindh and Central Punjab.
The perception that we may not harvest as much a big crop as
is generally considered is getting getting credence. By the
middle of this month, about 3.0- 3.2 million bales (roughly 18
to 20 percent of total crop ) would have arrived at the
ginneries and the buyers--spinners and exporters--are picking
up most of the pressed bales on consideration of better
quality and lower prices--down to Rs 1,700 per maund.
Finding the level of prices quite lower than matching foreign
growths, our merchants are understood to have committed some
80,000 - 100,000 bales in export sales and are quite
aggressive in cotton purchasing, but prices of seed-cotton and
lint cotton broke the barriers of support prices of Rs 925 per
40 kg and Rs 2,159 per maund for Grade III staple 1-1/32"
respectively.
To arrest the downtrend in prices which would be detrimental
to the interests of growers, the Government has its the
Trading Corporation of Pakistan (TCP ) in the market with the
mandate to keep the cotton prices above the level of
Government Support Price through cotton procurement.
Till now the TCP is reported to have entered into purchase
contracts of some 132,000 bales cotton from ginners at
Government rate of Rs 2,159 per maund ex-gin, against which
only a couple of lots ie about 500 bales have been delivered
to TCP at its Orangi Store, Karachi.
Surprisingly, cotton prices kept on declining reportedly to
touch the level of Rs 750 per 40 kg of seed-cotton against
Government rate of Rs 925, and Rs 1,700 per maund of lint
cotton against Government price of Rs 2,159.
The reasons for this crisis-like market situation are hard to
find. A question arises as to why cotton prices are going down
despite the fact that TCP is operating as a buyer. Is TCP a
real buyer or a dummy buyer? Why the ginners opt to sell their
lint cotton to spinners / exporters at discount of about Rs
300-350 per maund?
Ginners are of the view that TCP is not serious in taking
delivery. There is a growing dissatisfaction among cotton
growers who say that in fact TCP is helping the ginners by
purchasing lint cotton at a fixed Government price of Rs 2,159
while its market price is only between Rs 1,800 and Rs 1,900
per maund.
Most serious is the matter that the ginners are buying
seed-cotton from growers at rates between Rs 775 and Rs
825--much lower than Government fixed rate of Rs 925 per 40
kg.
Practically, this Government scheme has not misfired but
backfired on growers. It means the Government is practically
supporting the cause of ginners and hurting the cause of
cotton growers. Either the Government should discontinue the
system and let the market be governed by the demand and supply
forces, or ensure that cotton growers do not get less than Rs
925 for their produce. Although the Government really wants to
support cotton growers, the lobby of buyers works otherwise.
This system of procuring cotton does not really help the
growers because it has a lot of loopholes and an inefficient
and, to a great extent, corrupt machinery for its
implementation.
Alternatively, the Government can help the growers either by
giving some relief in prices of inputs including seed,
fertiliser and pesticides, or some relief in recovery of land
revenue and water charges (Aabyana ) or give relief in the
form of cash payments, say at the fixed rate of Rs 1,000 per
cotton sown acre directly to cotton growers.
The purpose is that relief should reach the deserving people
and should not be usurped by corrupt and privileged class of
people. We may not find foolproof and corruption-free system
but should try to adopt a system comparatively better and
effective system.
Taking cognisance of the sensitivity and intricacies of the
situation, the Government is holding meetings of all cotton
stakeholders and discussing the situation.
The ginners do not appear in a mood to guarantee payment of Rs
925 per 40 kg to growers unless they are assured corresponding
rate of Rs 2,159 per maund for their lint cotton.
Generally, representatives of stakeholder and Government
officials take part in meetings and discussions and because of
diverging interests only work for their respective interests
and the Government officials sometimes fail to make them agree
to a decision acceptable to all factions.
Therefore, in all such meetings and discussions on important
issues of economic and business nature, prominent subject
experts of high repute on impartiality and professionalism
should be called and their independent and professional views
and ideas should be sought which may help in reaching a
consensus among the participants.
The vested interests are already denying cotton growers /
suppliers the payment of premium for better quality cotton
which roughly works out to more than Rs .5.0 billion a year.
The agriculture community thinks that Jehangir Tareen, who is
a well-known agri-expert and has comprehensive knowledge of
the affairs of agriculture and problems of growers, is said to
be the most suitable person among the Cabinet members of Prime
Minister Shaukat Aziz to head the Ministry of Agriculture,
instead of Industry.
Reportedly he commands support of a large segment of
agri-community, specially growers. He can perform well in
boosting agriculture sector to the desired level.
The Government should work out a viable formula which may
ensure regular supply of lint cotton to spinners at reasonable
price and due payment at the rate of Rs 925 per 40 kg to
cotton growers / suppliers.
Lint prices in local market marked some improvement of Rs 25
to 50 and were ruling on last Saturday between Rs 1800 and
1925 per maund. On Saturday, the exporters and spinners swept
off almost all cotton from the market.
The ruling lint cotton prices in domestic market are perhaps
the cheapest in the world. Foreign inquiries India may have
surplus for export some 1.9 million bales (India's production
21.0 million local bales and consumption 19.1 million bales )
and has started offering Shaker-6 around 54 cents/lb which is
not workable in Pakistan.
Instead, Pakistan is offering its cotton to India at much
cheaper rates and on price consideration there stand bright
chances of bargains. Taking all factors into consideration,
there is a general opinion of the trade that lint prices have
already been bottomed out on the level of Rs 1,700 per maund
and are now increasing.
New York cotton futures operated within narrow margins.
October contract went off the board and now December and March
are active in trading. On Friday, October 8, December closed
at 47.35 cents a pound, March at 49.37 and May at 50.50 cents
per pound.
US may be issuing its latest cotton production / consumption
estimates probably on Tuesday, October 12, which are expected
to be somewhat lower than earlier ones.
China has already issued its cotton import quota of 894,000
tons (= 4.1 million 480-lb bales) for the year 2005, of which
33 percent will go to State Enterprises. China imported
1,980,000 tons cotton (8.415 million bales) in past 12 months
up to August 2004. China added 60,000 tons cotton to its
inventory of Reserve Stocks through purchasing from open
market in last July.
China has made great progress in evolving trans-genetic
anti-insect cotton strains and had developed a vector
containing one anti-insect gene in the last decade of last
century.
China is also working on building genes to improve cotton
quality and raise its output. India is very aggressively
expanding its cotton area under Bt. Cotton which is now around
3.0 million hectares (almost equal to Pakistan's total cotton
area ) out of total cotton area of 9.0 million hectares in
2004-05 season.
Pakistan is very late, rather reluctant to adopt Genetically
Modified (GM) technology.
Last year, India produced a crop of 17.7 million 170-kg bales
but this season an all-time high cotton production of 21.0
million 170-kg bales (=16.4 million 480-lb bales) is estimated
by adopting new technologies in seed and agronomy. India is
expecting a record high cotton yield of 400 kg per hectare
this season against their traditional yield of 312 kg in
previous years.
Curtesy: Business Recorder
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