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Cotton jumps after India halts exports

India’s announcement that it was suspending registration of cotton exports indefinitely in order to lower domestic prices had a completely opposite effect in the rest of the world the following day.

After the announcement, which came late Monday, April 19, July 2010 cotton rose 300 points to settle at 84.6 cents per pound, while December 2010 futures rose 92 points to 76.85 cents.

O.A. Cleveland, professor emeritus, Mississippi State University, said that the move had been discussed in India for at least a couple of weeks. “In country prices in India had gotten unreasonably high for the textile mills. They used their political power to sway the government.”

The announcement had more of a price impact on old crop than new crop cotton futures, but both have been affected, noted Cleveland. “Even over the last few months, we’ve seen old crop prices rise over new crop prices by about 3 to 1, so without a doubt, it’s pulling new crop along with it.”

An Indian government statement after an inter-ministerial meeting on cotton price increases said that the registration of export contracts prior to shipment of raw cotton shall now be suspended with effect from April 19 until further orders.

Reuters India says domestic cotton prices are up to 54 percent over the previous year impacting India’s textile makers’ margins and forcing them to increase prices of products across categories by up to 20 percent.

Cleveland believes the suspension of exports will help lower Indian prices in the short-term, “because there will be cotton that is available. India had become a bit of an exporter, and they are in the process of expanding acreage, and have probably reached a plateau on yield.”

The tight supply and demand situation in the world plays into higher futures prices here, Cleveland says. “With the United States being the primary exporter, and our crop getting short, and now India’s crop not being available, you have two big crops that are no longer available to the market.”

Cleveland says projecting prices from here, “is like getting into no man’s land. Yes, old crop prices can certainly go higher. The market had been positioning itself technically to break out of its trading range, which it broke out of yesterday (April 20). Another three to four cents could be in the works for old crop, for new crop, another one to two cents higher.”

India produced an estimated 23.5 million bale crop in 2009-10, about 2 million bales below projected use (domestic use of 19.4 million bales plus exports of 6.1 million bales). India’s ending stocks are projected at 8.52 million bales.

In April, USDA estimated slightly lower world cotton ending stocks compared with the previous month. World production for old crop cotton was reduced about 500,000 bales, based on reductions for the United States, Australia, and Burkina Faso. World consumption was raised, reflecting increases for Brazil, India, Turkey, and Uzbekistan, partially offset by a reduction for Pakistan. Forecast world ending stocks of 50.9 million bales are 44 percent of world consumption, which is the smallest world stocks-to-use since 1994-95.

In the United States, projected ending stocks for old crop cotton are 3 million bales, 200,000 below the previous month. The stocks-to-use ratio of 19.4 percent would be the smallest since 2003-04.


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