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Cotton looks bearish on higher stocks, good acreage forecast; weather will be the key: Angel Broking

Posted On: 2017-04-12 21:50:49

Views of Mr. Ritesh Kumar Sahu (Fundamental Analyst - Agri Commodities, Angel Commodities Broking):

"Cotton prices have been under pressure since second half of March. The pressure in cotton prices built after the reports of higher arrivals and sufficient stocks position in the country following a good production outlook in current as well as coming season and much improved import data coupled with lower than anticipated exports potential from the country during the present cotton year, which started in October 2016.

The rally on cotton price since the start of the current calendar year halted at around ?21,740 per bale in the third week of March. After consolidating at this level for some time, prices have started to decline since March. Weak demand from cattle feed traders, coupled with an increase in the supply, pushed the price lower.

On the Multi Commodity (MCX), the cotton April delivery contract has tumbled 5 per cent from its March high of ?21,740 to the current levels of ?20,690. The most active April delivery contract has been trading below its 20-day moving average of ?21,191. This level may act as a good resistance and restrict the upside in the contract in the near to medium term.

The monthly data released by the U.S. Department of Agriculture (USDA) showed estimated India stocks ending 2016/17 at 2.72 lakh tonnes (160 lakh bales of 170 kg each) as against an outlook of 2.59 lakh tonnes (52.4 lakh bales) in its report last month. The USDA raised imports projection by 129,412 bales to 29.47 lakh bales, which is 4.6% higher on month and 115% higher compared to than the last year imports. On the other hand, the exports from the country are revised downwards by 11.12% on month to 51.2 lakh bales (170 kg each). Last year. India exported about 73.8 lakh bales.

According to USDA forecast the production in India is pegged at 345 lakh bales, thus the available stocks for the current season is above 500 lakh bales after adding carryover stocks and imports. The domestic use and exports during the current cotton season will be about 355 lakh bales.

As per the latest press release by Cotton Association of India (CAI), cotton crop estimate for the ongoing cotton season at 340.50 lakh bales of 170 kgs each and with carryover stocks of 70 lakh bales the total availability will be around 410.50 bales. The domestic consumption is estimated at 300 lakh bales which leaves available surplus at 110.5 lakh bales. The exports and import estimates not given by CAI.

CAI further added that "the arrivals of cotton have accelerated their pace during the month of March 2017. The arrivals during March 2017 are higher than that of the corresponding month during last year and the gap of arrivals as compared to last year has narrowed down further.

The other factors which will impact on the cotton prices in coming months is the monsoon forecast in the sub-continent and weather during the US planting season. The USDA's crop planting forecast for 2017, released March 31, projects a 21% jump in U.S. cotton acreage to about 12.2 million acres.

Similarly, as per the International Cotton Advisory Council (ICAC), India's production is projected to grow by 2% to 5.9 million tons (347 lakh bales of 170 each) while production in China could reach 4.8 million tons in 2017/18 due to expected increase in area in both countries. Moreover, World cotton production is forecast to grow by 1% to 23.1 million tons in 2017/18 as high prices in 2016/17 encourage farmers to plant cotton.

In India, the minimum support price (MSP) recommendation for cotton in 2017/18 by Commission for Agricultural Costs and Prices (CACP) has been increase to Rs. 4,020 per quintal, an increase of Rs, 160 or 4%. Higher MSP proposal may attract farmers to plant more cotton this season compared to last year."

Source: Equity Bulls

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