cotton futures

cotton futures

July 24th, 2014

Cotton production in India, the world’s second-largest grower, is set to climb to an all-time high as delays in monsoon rains prompt farmers to switch from soybeans and peanuts, the nation’s biggest cotton trader said. Futures in New York fell.

The harvest is poised to expand as much as 2.6 percent to 40 million bales of 170 kilograms (375 pounds) each in the year starting Oct. 1, according to B.K. Mishra, chairman of the Cotton Corp. of India. While the area is increasing from 11.7 million hectares (28.9 million acres), the harvest will be delayed by the worst start to the monsoon since 2009, he said. Cotton Corp. buys the crop at government-set minimum prices.

Cotton futures have dropped for 11 straight weeks in New York, capping the longest slump in 55 years, on concern that global inventories are climbing as demand slows from China, the largest user. A higher crop in India, the top shipper after the U.S., may curb any rally in prices that fell 20 percent in 2014.

“The time for crops like soybeans and peanuts has passed so farmers will look at cotton as the last resort,” said Prerana Desai, research head at Kotak Commodity Services Ltd. in Mumbai. “Planting can catch up and we’ll definitely end up seeing higher acreage. Whether we’ll have another record crop or not we have to wait and see.”

Cotton Futures: ‘Bearish News’

Futures on ICE Futures U.S. tumbled 15 percent in June, the most since May 2012, and traded 0.5 percent lower at 67.75 cents a pound today. Prices reached a two-year high of 97.35 cents on March 26. The contract for July delivery on the Multi Commodity Exchange of India Ltd. fell 0.2 percent to 18,420 rupees ($306) per bale today, extending losses this year to 7 percent.

Higher Indian output “is going to add more supply to the global market,” Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida, said in a phone interview today. “The last thing cotton needs at this point is more bearish news.”

India will struggle to boost exports as demand from China, the biggest buyer of Indian cotton, remains weak and U.S. supplies are rising, Desai said. Shipments are seen at 11.4 million bales in 2013-2014, the Cotton Advisory Board says.

“Unless and until prices in India fall to dramatically low levels, exports will remain subdued next year,” she said.

Cotton Futures: Rain Shortage

Seeding of crops from cotton to soybeans and rice was delayed in June by a 43 percent deficit in monsoon rain, which accounts for more than 70 percent of India’s annual precipitation. The shortage narrowed to 25 percent yesterday, accelerating planting, according to the India Meteorological Department.

While traders in India are predicting an increase in cotton output in 2014-2015, UBS AG expects the delay in planting in key growing areas to reduce production.

“At this point it’s very difficult for farmers to make up for the lost ground,” Wayne Gordon, a commodities analyst at UBS in Singapore, said by phone. “Even in the most optimistic scenario they are likely to miss out about 1.5 million hectares to 2 million hectares. And if rain continues to be a problem it could be even worse than that.”

Farmers seeded cotton on 5.6 million hectares by July 18, 44 percent less than the 10.05 million hectares in the same period a year earlier, according to the Agriculture Ministry.

The rain delays over most parts of India and the deficit are prompting growers to switch to cotton as it consumes less water, Cotton Corp.’s Mishra said by phone from Mumbai July 18.

“Sowing will pick up now,” said K.R. Kranthi, director at the state-run Central Institute for Cotton Research. “If it hadn’t rained by now, that would have been a major concern. There could be a fall of 5 to 10 percent in area because of delayed rains. Still, there is no need for any panic.”

Crop picking will be delayed by 20 days to 30 days in the northern Indian states of Punjab and Haryana and may be about 45 days late in the biggest producing states of Gujarat and Maharashtra, Mishra said.

- Pratik Parija in New Delhi at Bloomberg.