Cotton: Time For High-Yielding Varieties .

With supplies maintaining the lowest levels since 1993, cotton prices have skyrocketed to $1.70 a pound.

In fact, cotton has had an exhilarating journey with demand outpacing supply in the past five years. The prices climbed over 100% in the last six months and—hold your breath—150% over the past 18 months. Floods in Pakistan, unforgiving rains in China, and India ceiling on exports have led to limited global inventories: 44 million bales.

The demands from emerging markets—China consuming 40% of global cotton production, making it the largest consumer of cotton in the past year—especially India, has been pushing up prices.

Supply-Side

The world’s largest exporter of cotton, US, had a fulfilling harvest and registered a 50% increase in production. Still the stocks stand just at 1.9 million bales. US export commitments at the end of 2010 stood at 90% of projected exports for the season. (The country’s ending stocks to use ratio stands at a record low of 10%; thanks to robust export demand).

In fact, high cotton prices have encouraged cotton farmers to switch to cotton cultivation in US. The acreage this year is expected to go up to 12.5 million acres, a 14% surge from past year’s 10.97 million acres.

Meanwhile, Argentina cotton acreage has increased 36% to 600,000 ha and Australia has increased acreage by whopping 150% to touch a record 500,000 hectares.

India’s production of cotton is likely to be at 34 million bales and the India government will review export ceiling of cotton and cotton yarn this month. The group of ministers headed by finance minister of India, Pranab Mukherjee will review the export ceiling of 5.5 million cotton bales and 720 million kg cotton yarn. (A bale is 170 kg.)

Wet weather in China has led to production downgrades in cotton there. The produce in 2010 was 5.5% less from 2009 figures of 6.4 million tons. The farmers in China have resorted to stockpiling of cotton in view of higher prices with WSJ reporting 9% of the world’s cotton as having stockpiled by the Chinese!

Demand Side

China made a 100% increase in cotton imports in 2010--the high price notwithstanding--which is the highest level since 2006. Now the government there faces the dilemma of depleting reserves prompting it to depend solely on imports.

India’s textile industry is expected to be in need of 10 million metric tons of fibers to leverage its potential to become $ 220 billion industry by the end of 2020.(Domestic market is pegged at $ 140 billion and the export market at $ 80 billion.).

As on 2009, the industry is valued at $70 billion.

The Indian cotton industry consumes 8 million metric tons of fibers. Of the additional 10 million fiber requirement, only 3 million would be from the cotton crop side.

The land use for food crops is on the rising and as a result, cash crops like cotton may have to take a back seat at 11.5 million ha from the current levels of 11 million ha.

India’s fiber requirement has been growing at a rate of 6.5% while the world is registering just 2.4% rise. India’s current installed ring spinning spindle capacity is 43 million which may possibly register an enhancement to the tune of 2 to 3 million spindles in the coming 2-3 years. This is also deemed to increase cotton consumption by India.

Industry players are of the view that India‘s cotton shortage would be too acute in the coming years and high yielding varieties should be encouraged.

Source : commodityonline.com