Better prospects may produce record high cotton crop next season-Texglobe

KARACHI (May 17 2010): Cotton sowing is going on peak as ideal sowing season starts from 15th May and extends till 15th of June month but availability of irrigation water make it adjustable on both sides. Reportedly, some 40 to 45% cotton sowing has been completed in Multan, Khanewal, Muzaffargarh, D.G. Khan, Ali Pur, and Rajanpur areas where irrigation water has been made available.

Field reports indicate good increase in cotton area in hope of better return. This time, the government has reportedly released some 8 to 9 strains of Bt cotton varieties which hopefully would give better yield in 2010-11 season. Cotton area in Punjab is some double of that of Sindh.

On the reports of 12 to 15 % increase in cotton area and extended sowing of Bt cottonseed on at least 90% area in Sindh and some 60% in Punjab, the production estimates at 15 to 16 million local weight bales appear to be quite justified and realistic on normal weather conditions.

There should be no surprise if our cotton production set ever high record of 16.5 million bales in 2010-11 season at least matching with our domestic requirements as we cannot afford to import cotton worth 700 million to one billion US Dollars every season. If we look at the yields (Kgs/hactres), we find US at 827, Turkey 1316, China 1324, Brazil 1432, India 579 and Pakistan 680 Kgs/ hactres. Thus Pakistan has good potential of improving its yield by at least 25% to make it 850 by extensively using high yielding cotton seed varieties of Bt cotton / hybrid cotton.

The developments of cotton plants in early sowing areas of Lower Sindh and some parts of Central Punjab are reportedly progress well and cotton plants in early sown areas are heading towards maturity. However, in Lower Sindh one report says there may be a delay of two weeks. When asked about the area sown well earlier than normal sowing in Punjab, one agriculture official said that it could be around 200,000 hectares yielding some 800,000 bales. Needless to mention that trend of year to year early sowing is getting stronger every season on reports of higher yields and comparatively lesser damage to crop.

Taking cognisance of the ground realities, the Government of Pakistan decided to levy 15% ad valoram regulatory duty on export of all types of yarns from 13th May, 2010 for a period of two months. Previously, on the demand of the value-added textile sector, the government had capped the export of yarn at 50,000 tons per month. The tussle between spinning sector and value-added textile sector has been going on for the last couple of months due to tight supply of yarn to domestic industry.

The value-added textile sector does not appear satisfied with these actions of the government and has demanded increase of regularity duty to 30% instead of 15% while the spinning sector seems very much annoyed and Aptma (Spinners' apex body) has decided to stage rallies and demonstrations on every Tuesday and Thursday for stressing the government to withdraw all such restrictions on export of yarn. It is a fact that large number of hand-looms / power looms, sizing, towelling and garments have closed their operations due to tight supply of their raw material at high price and power shortage. The value-added textile sector argue that in selling finished textile goods such as apparels / garments, value of cotton yarn can be increased 6 to 8 times of the cost of yarn, New cotton crop may be starting from next month and the growers would join hands with the spinning sector to pressurise the government do away with all such restrictions on export of yarn to get them better price of cotton. Industry reports indicate no any remarkable effect in easing down the price and increasing availability of yarn in local market.

The spinners appear to be losing interest in cotton buying as they opted to remain on sidelines and watch the market development. As a result of Indian ban on export of raw cotton and restrictions on yarn exports, cotton and yarn prices have shown marked decline in prices, which benefited the spinners and value-added textile sector simultaneously. Presently, the price of Indian cotton which equates our cotton is around Pak Rs 5,200-5,300 per maund ex-gin whereas lint prices in Pakistan are quoted around 6,500 per maund. Although there are no notable transactions in the market yet the KCA has maintained the spot rate at 6,700 per maund ex-gin. New crop cotton rate may open around Rs 6,000 per maund ex-gin.

The FOB Karachi price of Pakistan cotton on the parity of Rs 5500 per maund works out to around US Cents 84 / lb which may not be workable in exports. The domestic spinning sector would not like to pay much higher than export parity. Only around the level of Rs 5,200 per maund, ex-gin, our cotton may find foreign buyers. As such, local market should keep its level around Rs 5,500. However, in view of fabulous profits earned by ginners this season, ginners may face tough competition next season.

Next cotton season appear to be quite tricky and all the cotton stakeholders particularly the ginners and exporters have to be very alert while making cotton deals. No matter the export restrictions are on yarn but it does not mean that raw cotton prices would go high. Of course, cotton and yarn export prices would maintain a positive correlation to keep price equilibrium.

On the international market, developments in politics, finance and economy effect cotton and yarn prices either way and domestic factors relating to politics, law and order, terrorism, economy and social matters effect markets and prices show abnormal behaviour.