According to feedback from private cotton companies in Gujarat, Maharashtra and other places, India’s domestic S-6/J34/MCU5 spot quotations, FOB/CNF quotations, etc. have been reduced to varying degrees in recent days (Comparison of the decline of S-6 in Kupang (large), but the inquiries and transactions of yarn mills have not improved, and the wait-and-see and resistance sentiments are still strong. The northern cotton areas of Punjab, Haryana, and Rajasthan are still in a state of high temperature and drought (the progress of cotton planting in Punjab is significantly lagging behind year-on-year, and it is difficult to achieve the expected goals); Indian cotton companies and funds have raised the MSP purchase price, CCI The enthusiasm for speculation is still high due to stocks being exhausted and India’s cotton production in 2021/22 being seriously overestimated; coupled with rising prices of chemical fertilizers, agricultural machinery, diesel, labor, etc. in 2022, the cost of cotton planting will increase significantly, etc. As a result, Indian farmers and growers have higher expectations for cotton prices in India in 2022/23. Some individual farmers believe that the cotton purchase price will increase by at least 10%.
However, the author judges that Indian spot prices may experience a sharp decline in the near future. The reasons include the following:
First, due to the pressure of high cotton prices, not only the operating rate of cotton textile and garment enterprises in India has dropped significantly, but a certain amount of orders have been transferred to Southeast Asian countries such as Bangladesh and Vietnam. The intensity and magnitude of the decline in Indian cotton consumption may be much higher than the peak. expected.
Second, imports of cotton, cotton yarn, etc. continue to increase (the Indian textile department has requested the authorities to quickly decide to delay cotton exemption from tariffs), which is becoming increasingly substitute for Indian cotton consumption.
Third, India’s MSP purchase price for 2022/23 has only been raised by 6.2%, which is lower than the 8%-10% expected by farmers and cotton companies. It is also significantly lower than the 5%-20% MSP purchase price of other crops such as wheat, soybeans, and peanuts. increase.
Fourth, the year-on-year growth rate of India’s cotton planting area in 2022 may be significantly higher than the 15% predicted by CAI. Due to the early arrival of the southwest monsoon and its rapid northward movement, central cotton regions such as Gujarat, Maharashtra and Madhya Pradesh have received abundant rainfall. Not only is the cotton planting area expected to increase significantly, but the planting progress is far ahead, which can fully make up for the substandard conditions in the northern cotton regions due to drought. area.
Fifth, the Federal Reserve is about to raise interest rates in June, and the global commodity futures market is expected to be under pressure to decline. The ICE market may have a sideways impact on Indian cotton futures.
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