Indian Agriculture minister challenges cotton export ban

Agriculture minister Sharad Pawar called for the lifting of a "highly objectionable" ban on cotton exports on Tuesday, less than 24 hours after it was announced and sparked a sharp rally on global cotton markets.

U.S. cotton futures raced to end limit up on Monday after India said it had stopped exports with immediate effect to ensure supplies for domestic mills, fuelling speculation that main consumer China would have to turn to other sources.

Global prices eased, however, after Farm Minister Sharad Pawar's comments, with the benchmark May U.S. futures contract maintaining gains of just over one percent.

"I was kept in the dark on the issue and have requested the prime minister for revocation of the ban," Pawar told reporters. "Our production is higher this year and farmers are complaining of falling prices."

A government panel will discuss the ban on Friday, the textile secretary said.

Pawar is a pivotal ally of the ruling Congress party which is currently facing a disastrous result in local elections in several states as its coalition government struggles to pursue reforms that could shore up economic growth.

He is also a staunch supporter of farmers -- one of the biggest voting blocks in India -- and often holds the trump card in government decisions. Pawar pushed through several export deals for staple foods last year.

On Tuesday, the benchmark May cotton contract on ICE Futures U.S. exchange was up 1.53 percent to 93.64 cents a pound, down from the day's high of 94.24 cents. The contract is at its strongest level since mid-February.

The exchange said it would raise margin requirements to trade cotton futures by more than 76 percent after the Indian ban.

A swift revocation of the ban is likely to have more impact on India's already shaky reputation as a reliable supplier of commodities than on global supply and demand.

"We have lost face in the international community as of now, and if (the ban is lifted), this will be a face saver and stop further damage," said Nayan Mirani, vice-president of the Cotton Association of India, which represents traders and exporters.

Government delays in deciding on grains and sugar exports have left traders facing falling global prices while its fickle policy on cotton exports had last year hurt its role as a steady supplier.

Other key exporters such as Australia and the United States were expected to benefit from India's surprise ban, but with more cotton coming onto the market, prices are unlikely to rally to all-time highs as they did last year.

"There is quite strong production coming from many countries," said Paul Morris, executive director of the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

"I think there will still be downward pressure on prices despite India not being around."

AUSTRALIA POISED TO BENEFIT

Cotton ended 2011 as the worst-performing commodity of the year, falling 37 percent from 2010 as record prices boosted output and decimated demand, while a shaky global economy scared off investors.

If India's ban persists, major cotton exporter Australia is poised to benefit the most. Exports are expected to soar 89 percent in 2011/12 to a record 955,000 tonnes, rising to 1.1 million tonnes in 2012/13, ABARES said.

"It's an opportunity to build on overseas markets" said Australian Farm Minister Joe Ludwig.

India, the world's second-largest cotton producer, has already exported 9.4 million bales -- higher than the projected 8.4 million bales quota the government set in January, because of strong demand from China.

This led India's Directorate General of Foreign Trade to ban shipments to ensure steady supplies for the local textile industry, the country's largest employer after agriculture and which accounts for some 4 percent of GDP.

"Government action was necessary to protect the industry," said D.K. Nair, secretary of the Confederation of Indian Textile Industries Association.

"Right now there is no supply problem ... the figures show this could happen in two to three months," he added.

India's cotton output is expected to hit a record high of 34.1 million bales of 170 kg each in 2011/12.

Most of India's cotton exports are shipped to China, and traders said Chinese buyers might turn to suppliers cheaper than the United States, India's top rival and the largest exporter of the fibre.

"Indian cotton is the cheapest. The ban could shift Chinese buyers to Brazil or African cotton," said Guo Rongmin, general manager with Beijing Cotton Outlook Consulting Co. Ltd.

He said only about 300,000 tonnes of cotton ordered by Chinese buyers had not been shipped out. China had planned to buy 1.3 million tonnes from India in the year from September.

China also has plenty of cotton stocks: the China National Cotton Reserves Corp. research centre forecast stocks to double to 5.28 million tonnes in 2011/12 from a year earlier.

China's cotton production is also estimated to rise 21 percent on the year while consumption is seen declining some 6 percent.

Globally, cotton production is expected to exceed consumption this year and again in 2012/13 despite low prices, according to the International Cotton Advisory Committee.