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Saturday, July 20, 2024

Cotton demand over the world will continue to be the focus in the coming year

The local cotton market in Pakistan remained tight during the week with low trading volumes. The prices differed in Karachi, Lahore, and Balochistan markets.

The cotton rate in Sindh for lower quality was Rs 16,500, while for prime quality, it was Rs 18,500 per maund. The rate of Phutti in Sindh ranged between Rs 6,500 to Rs 8,200 per 40 kg. The -cotton rates in Punjab for lower quality having higher trash content were Rs 17,000 per maund, while superior quality fetched Rs 18,500 per maund. The Phutti prices were between Rs 7,000 to 8,800 per 40 kg. Similarly, rates of cotton from Balochistan were registered at Rs 17,000 per maund for lower quality and Rs 18,000 for better quality.

On Thursday, 200 bales of Khanewal were sold at Rs 19,600 per maund, and 200 bales of Fort Abbas were sold at Rs 18,200 per maund. The Spot Rate remained unchanged at Rs 17,800 per maund. Polyester Fiber increased to Rs 362 per kg.

Meanwhile, according to figures released by the ginners, Sindh province has become the cotton king of Pakistan, beating Punjab province for the first time in the production of silver fiber.

The data showed that Sindh, which usually accounts for about 30 percent of the country’s total cotton output, produced more than 50 percent of the 8.171 million bales that arrived in the ginning factories by Dec. 31, 2023.

Pakistan Cotton Ginners Association (PCGA) said that Sindh produced 4.092 million bales, up 121.16 percent from last year, while Punjab produced 4.078 million bales, up 47.66 percent.

The data showed that 8.171 million bales of cotton arrived in the country’s ginning factories by December 31, 2023, compared with 4.612 million bales in the same period last year. Compared to the same period the previous year, as many as 3.558 million bales of additional cotton have arrived in the factories this year, showing an increase of 77.14 percent.

As per PCGA data, 4.092 million bales have arrived in the cotton factories of Sindh province, which is 2.241 million bales more than the crop of 1.850 million bales reaching the factories in the province in the same period last year. The rate of increase in the province of Sindh has been phenomenally high—121.16 percent.

In comparison, as many as 4.078 million bales of cotton arrived in the factories of Punjab province, which is 1.316 million bales more than the crop of 2.762 million bales of cotton in the same period of last year, according to a PCGA report, showing a jump of 47.66 percent in Punjab over previous crops size.

Traditionally, with production primarily in two central provinces, approximately 65 to 70 percent of Pakistan’s cotton is used to be grown in Punjab, which has relatively dry conditions in southern parts. The rest is grown in Sindh, which has a hotter and more humid climate, and a negligible area is brought under cotton in Balochistan and Khyber Pakhtunkhwa provinces too.

Considered the pioneer of domesticating crops, cotton has been grown for centuries in this part of the world. It is planted during the monsoon months of May to August, known as the Kharif period.

Returning to the latest PCGA cotton arrival report, Sanghar in Sindh province topped in reported arrivals of silver fiber in the province and the country. As many as 1.68 million bales of cotton were reported in Sanghar district till December 31, 2023, followed by Sukkur district with arrivals of 0.54 million bales of cotton.

In Punjab, Bahawalnagar district led in arrivals in ginning factories in the province. As per district-wise breakdown, as many as 1.06 million bales of cotton were reported in Bahawalnagar district, followed by Rahim Yar Khan, who registered 0.59 million bales of cotton.

The textile sector has purchased 7.314 million bales of cotton, while exporters/traders have purchased 0.292 million this season.

Despite successive announcements by the federal and provincial governments, the Trading Corporation of Pakistan (TCP) has not purchased cotton from the farmers of ginners for the 2023-24 season. As many as 241 ginning factories are operational in the country.

It may be noted that cotton is the most important cash crop in Pakistan, and cotton product exports account for 55 percent of all foreign exchange earnings of the country.

Cotton demand will continue to be the focus in the coming year. Mills are sitting on high inventories, and yarn prices have been low recently. Another large crop is predicted in Brazil, which will impact the price and consumption of U.S. cotton.  

In the US, marginal daily gains were made in the March contract, helping lift prices above 80.00 cents per pound, where they consistently stayed for the week. The recent positive outlook on interest rates has caused the U.S. Dollar to fall back to summer lows, supporting cotton prices this week.  March futures settled at 80.95 cents per pound, up 182 points. Total open interest decreased by 1,664 contracts to 194,778. Strong U.S. export sales and shipments were reported for the week. A net total of 369,900 Upland bales were sold, and 231,000 bales were shipped. China held the majority of these sales, booking 231,000 bales. A net total of 4,000 Pima bales were sold, and 3,500 bales were shipped.

Looking back on 2023, there were plenty of major market-moving events. The Federal Reserve continued its path of interest rate hikes but also began to pause rates. During this time, interest rates reached the highest level in 22 years. Many sectors of the economy have felt pressure from the higher rates, but others have advanced with minimal disruption. Bank failures at the beginning of the year had many worried about the economy’s health, shaking up expectations on what the Fed would do. 

The job market has gradually slowed down but stayed resilient throughout the year. Cooling inflation and maintaining employment have been the Fed’s goals throughout this process. Major indexes took off in the last half of the year, finishing 2023 on record closes. Geopolitical tensions remain high across the globe as the war in Ukraine continues, and another war was started between Israel and Hamas. The U.S. government has also had its share of excitement, with a government shutdown being narrowly avoided and an ousted Speaker of the House that paved the way for new leadership. The economy’s overall health is not out of the woods yet, but markets are ending the year with a great deal of optimism about the future.

Thinking back to what has happened over 2023, cotton had what some might call a lackluster year. The 2022/2023 crop in the Southwest finished with the lowest level of production seen in over 20 years. When timely rains were received, there was hope for the 2023/2024 Southwest crop. Unfortunately, the overall lack of moisture received over the summer and above-average temperatures took its toll on the crop.

At this point, USDA predicts that the 2023/24 crop will be marginally better in the Southwest region. Since January, futures contracts have traded in a 15.00 cent range. The season’s low was traded at 74.77 cents per pound, and the high was 90.00 cents per pound. Demand for U.S. cotton and overall global consumption has decreased as the year progresses. Bigger crops and cheaper prices in Brazil and Australia have impacted the world’s need for U.S. cotton.

China’s economy has not recovered as many had hoped, and activity has been light compared to usual. Crude oil prices, typically correlated with cotton, have also seen highs and lows this year. The U.S. consumer has continued spending, but retail sales have tapered recently. Despite a smaller U.S. crop, the pressures from the domestic and global economy have not helped cotton prices.

At this point in the year, we have received more rainfall than usual compared to prior years. El Niño is predicted to be more modest than initially forecast, so any precipitation received in the coming months will be closely monitored. Compared to last year, the coming year’s weather is encouraging for cotton production.

As for outside markets, outlooks differ on what will come in the stock market. Inflation is falling in most of the world, and U.S. inflation is now at 3.1 percent compared to the Fed’s goal of 2 percent. The expected cuts to interest rates in the coming year have many optimistic but cautious that the economy could backtrack. 

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