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Wednesday, June 26, 2024

This week’s global cotton scenario

The cotton market in Pakistan remained steady amid steady trading volumes from Monday through Thursday. The crop is short by around 4 million bales from the local demand.

The cotton rate in Sindh was Rs 17,500 per maund for little inferior quality and 20,000 for prime quality. In Punjab, cotton of inferior quality fetched Rs 17,000 per maund, while for superior quality, the price was Rs 20,000 per maund, the same as in Sindh. The cotton rate in Balochistan was registered at Rs 17,000 per maund to Rs 17,500 per maund. The Phutti were between Rs 7,000 and 9,200 per 40 kg.

On Thursday, 200 bales of Kotri were sold at Rs 16,500 per maund, and 200 bales of Tando Adam were sold at Rs 18,500 per maund.

The Pakistan Cotton Ginners Association (PCGA) data released Thursday showed that cotton production fell 28 percent below the official target for the 2023-24 season, as the central cotton-growing province of Punjab saw a 51 percent drop in its harvest.

The PCGA data showed that cotton arrivals at ginning factories by Jan. 15 were 8.25 million bales, compared with the revised target of 11.5 million bales set by the Federal Committee on Agriculture (FCA).

Although the total production of the ongoing cotton year is about 3.3 million bales higher than last year’s flood-ravaged crop, producing a total output of just 4.9 million bales, the crop still fell short of the 3.2 million bales of the revised target for the current year and over four million bales of the initial target.

The failure of the cotton crop in the country has mainly been attributed to Punjab’s colossal collapse in harvesting a good yield of silver fiber in the ongoing season. As per the latest data released on the about-to-conclude stage, cotton arrivals at the ginning stage in the province were recorded at merely 4.158 million bales till January 15, 2024, which is 51 percent shorter than the official production target of 8.2 million bales.

The harvest of Punjab during the current season has also been much lower than the past five years’ average, which stood at around 6.5 million bales, barring last year’s crop, which was severely hit by the record flooding.

According to the ginners data, Sindh’s cotton production has seen leapfrogging to 4.099 million bales till the mentioned period, 118 percent more than last year’s production, devastated by floods. Punjab’s production is 37 percent greater than last year’s output.

Owing to the decrease in cotton production, it is expected that up to four million bales of cotton will be required to be imported to meet the demand of the textile sector. PCGA data showed that Khanewal in Punjab produced 0.217 million bales, Dera Ghazi Khan 0.362 million bales, Layyah 0.224 million bales, Vehari 0.216 million bales Sahiwal 0.193 million bales, Rahim Yar Khan 0.607 million bales, Bahawalpur 0.559 million bales, Bahawalnagar 1.108 million bales.

In Sindh, Hyderabad’s output was recorded at 0.228 million bales, Mirpur Khas 0.135 million bales, Sanghar 1.690 million bales, Nawabshah 0.178 million bales, Naushero Feroze 0.320 million bales, Khairpur 0.354 million bales, Ghotki 0.277 million bales, Sukkur 0.546 million bales and Dadu produced 0.106 million bales during the period under review. Baluchistan, on the other hand, recorded a production of 0.187 million bales.

Meanwhile, in India, the price of cotton 29mm is ₹55,000 and is witnessing a declining trend of 0.54 percent. The retail price range for China cotton is between US$ 0.74 and US$ 0.87 per kilogram or between US$ 0.34 and US$ 0.40 per pound(lb). The retail price range for Brazilian cotton is between US$ 1.56 and US$ 1.64 per kilogram or between US$ 0.71 and US$ 0.75 per pound(lb). The retail price range for Australian cotton is between US$ 4.06 and US$ 8.71 per kilogram or between US$ 1.84 and US$ 3.95 per pound(lb). The retail price range for South African cotton is between US$ 2.95 and US$ 3.93 per kilogram or between US$ 1.34 and US$ 1.78 per pound(lb). The retail price range for Kazakhstan cotton is between US$ 0.77 and US$ 1.21 per kilogram or US$ 0.35 and US$ 0.55 per pound(lb).

In the United States March futures traded sideways most of the week but made substantial gains on Thursday to finish on a high note. On Monday, commodity prices, in general, had a meltdown. Cotton prices went down during the day but recovered and etched out minor gains. The story was the same for the rest of the week. Futures prices traded sideways but finished in the green for three consecutive days. The market went lower on Wednesday, falling under pressure from higher Chinese cotton prices and lower prices in the energy sector. March futures started firm on Thursday and managed to hold onto the gains, with credit going to a strong Export Sales report and potential cuts to the U.S. crop on the WASDE report. March futures finished at 81.36 cents per pound, up 124 points for the week. Total open interest increased 5,652 contracts to 204,948, the highest level since November.

The December Consumer Price Index (CPI) added a new layer of uncertainty on the direction the Fed will take where interest rates are concerned. CPI came in hotter than expected, increasing 0.3 percent month-over-month and 3.4 percent year-over-year. Weekly jobless claims added to the uncertainty when they fell unexpectedly to a two-month low. The U.S. Producer Price Index (PPI) was friendlier to markets than the CPI reading. December PPI fell 0.1 percent month-over-month and increased 1.0 percent year-over-year, both weaker than expected. Overall, stocks finished higher when compared to the week prior but finished mixed on Thursday. The Dow managed to post a record high during the day despite the issues with Boeing early in the week. Geopolitical tensions in the Middle East allowed higher crude oil prices to finish the week. The Dollar was basically unchanged from the prior week, trading on both sides of the market on mixed economic news. Next week, the focus will be on Congress to see if a government shutdown can be avoided.

The U.S. Export Sales report for the week contained surprisingly strong sales and shipments. Net new sales of 262,500 Upland bales for the 2023/24 crop year were reported, much higher than anticipated since the New Year’s holiday was during the reporting period. The biggest buyers for the week were China and Vietnam, each booking 117,900 bales, followed by Bangladesh with 18,000 bales, Pakistan with 11,300 bales, and South Korea with 4,300 bales. Shipments were exceptional as well, with a total of 228,100 bales exported for the week. A net total of 2,000 Pima bales were sold, and a marketing year high of 26,700 bales were shipped.

For the U.S. side of the balance sheet, the headline number was the 346,000 bale reduction to the crop, bringing total U.S. production to 12.434 million bales. U.S. consumption was unchanged at 1.9 million bales. U.S. exports were lowered to 12.1 million bales. With the flow of changes, ending stocks decreased by 200,000 bales to 2.9 million bales. The big cut to overall production came from the Southwest. The Texas crop decreased by 300,000 to 2.8 million bales, and Oklahoma decreased by 40,000 to 310,000 bales. Kansas, however, increased 8,000 to 168,000 bales. With the Pima estimate included, this brings the total Upland crop in the Southwest to 3.278 million bales and 3.30 million bales.

The reduction of the U.S. crop should have made for a more bullish report; however, a cut to overall world consumption and increased ending stocks had the cotton market trading sideways. World use was cut from 1.3 million bales to 112.43 million bales. This allowed 1.98 million bales to be added to world-ending stocks, increasing to 84.38 million.

The WASDE is behind us until next month, and traders will now focus on cash trading. The Export Sales report will remain the key focus for the cotton market, seeing that the U.S. is in a potentially tight situation where cotton stocks are concerned. Next year’s cotton acres are starting to come to the front of people’s minds, so the performance of competing commodities will be monitored in the coming months. Lastly, markets will be closed on Monday due to the Martin Luther King, Jr. holiday.

Meanwhile, the ICAC released its report on the planetary meeting held in India last December. The report states that cotton production worldwide provides livelihood to 23.9 million farmers and 125 million people throughout the value chain. In periods of soaring cotton prices, subsidies have typically been reduced. Conversely, during times of depressed cotton prices, subsidies generally have increased. The Secretariat estimates that total assistance to the cotton sector reached $8 billion in 2022/23, up 66 percent from the $4.8 billion provided in 2021/22.

Cotton cultivation faces challenges, including soil health, temperature changes, pests like pink bollworm and whiteflies, and diseases like the leaf curl virus. Potential solutions include developing new cotton varieties through breeding and gene editing, water and fertilizer management, pest monitoring tools, and precision farming techniques like using drones for pesticide application.

The cotton and textile value chain recognizes traceability, sustainability, and responsibility for its potential to positively impact people and the planet, where traceability and sustainability should go hand in hand.

One concern is the lack of a level playing field for cotton. At a minimum, governments should consider subjecting man-made fibers to the exact traceability and sustainability standards as natural fibers to create a level playing field. Available traceability technologies are expensive and technologically challenging for smallholder farmers and smaller industrial units to implement and can eat into their tight margins. 

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