Cotton- looks bearish on seasonal arrivals and forecast of lower export and domestic consumption

1. Cotton Update
Cotton – looks bearish on seasonal arrivals and
forecast of lower export and domestic consumption
19th October, 2016

2. Cotton Update
Price Performance - Monthly
• MCX- Cotton and NCDEX- Kapas fell 2.7%
and 4.13% respectively in last one month on
lower demand from the industrial users like
ginners, cotton mills and textile units.
• Moreover, due to prospects of higher crop
production in the country the prices of
cotton have been decreasing during the last
2 months – August and September.
2
860
880
900
920
940
960
980
1000
1020
17000
18000
19000
20000
21000
22000
23000
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Monthly Average Close Price- Cotton-MCX & Kapas - Ncdex
( 2016)
MCX-Cotton (R/bales) NCDEX-Kapas (R/20kg)
• Earlier, cotton prices have touched three years high during July and August 2016 on
reports of lower cotton acreage in the northern states of Punjab and Haryana.
• With the increase in cotton price, cotton acreage in the country recovered during Aug-Sep
on above normal and well distributed rains in cotton growing states.
• As per officials of the Nagpur-based Central Institute for Cotton Research (CICR), the yield
forecasts for cotton will increased by 10% due to sudden spell of heavy rains in cotton-
growing regions of Maharashtra, Gujarat, Telangana and Karnataka during last weeks of
September but there are every chance of delay in arrivals.

3. Cotton Update
Price Performance - Quarterly
3
(6.24)
26.19
(2.31)
(6.66)
6.11 7.34
-10
-5
0
5
10
15
20
25
30
Q1 Q2 Q3
Cotton Price - Quarterly Change %
MCX ICE
• During Q2( April- June), MCX-cotton
prices in India surged by whopping
26% following a sharp decline in
output estimates for the current
crop year (2016-17) coupled with
non-availability of good quality
cotton.
• Demands from domestic mills were
good and supply was tight as
stockists and traders are not willing
to sell at lower levels on anticipation
of better price realization.
• International cotton (ICE cotton futures) have increased during Q2 and Q3 despite
the China continue to sell their massive cotton stocks. During this period, world
cotton was facing a deficit with demand outstripping the supply and there was
forecast of lowest ending stocks in five years.

4. Cotton Update
Domestic area under cotton fall
4
 As per latest estimate by government, cotton is
planted in 102.55 lakh hectares (lh) in the
country, down by 11.6% against 116 lh last year as
on 23 Sep against normal acreage of 120.3 lh.
 The area under cotton is lower this year because
farmers have sown other crops like maize and
pulses due to low profits, increasing vulnerability
to pest attacks, and declining groundwater levels
due to two years of drought in the country,
especially in the northwest.
State 2016-17 2015-16 Change (%)
Maharashtra 38,06,000 38,24,000 -0.5
Gujarat 23,80,000 27,61,000 -13.8
Telangana 12,30,000 16,73,000 -26.5
Madhya Pradesh 5,99,000 5,47,000 9.5
Haryana 4,98,000 5,81,000 -14.3
Rajasthan 4,83,000 5,39,000 -10.4
Karnataka 4,05,000 5,75,000 -29.6
Andhra Pradesh 3,85,000 4,06,000 -5.2
Punjab 2,56,000 4,50,000 -43.1
Odisha 1,36,000 1,25,000 8.8
Uttar Pradesh 28,000 18,000 55.6
Tamil Nadu 17,000 21,000 -19.0
Total 1,02,23,000 1,15,20,000 -11.3
 In Gujarat, the top cotton producing state, the crop had been sown across 23.8 lh, down
13.8% from a year ago while in Maharashtra, the largest area under cotton, the acreage
was at 38.0 lh, slightly down from around 38.2 lh a year ago.
 In Punjab, the area under the cotton crop was at 256,000 ha, down a sharp 43.1% on year,
while in Haryana, it was down 14.3% at 498,000 ha. The acreage in Rajasthan was at
385,000 ha, down from 406,000 ha a year ago.

5. Cotton Update
Domestic Production Estimate
 As per, the Cotton Association of India (CAI), the
trade body has retained the cotton crop estimates
for the year 2016-17 season at 336 lakh bales (of
170 kg each) almost same as last year production.
 According to CAI, in 2016-17, production in the
central zone, which includes states of Gujarat,
Maharashtra, and Madhya Pradesh, is estimated at
195 lakh bales, against 185 lakh bales last year.
5
353
342
398
390
338 336
100
105
110
115
120
125
130
330
340
350
360
370
380
390
400
410
2011-12 2012-13 2013-14 2014-15 2015-16* 2016-17#
Production (Lakh Bales) Area (Lakh Hac)
Source: CAB, Angel Commodity Research
Yearwise Cotton Area & Production
 In the northern zone, which includes Punjab, Haryana, and Rajasthan, the cotton production may rise
to 43 lakh bales from 41 lakh bales a year ago, while the south zone is expected to produce around 92
lakh bales, compared with 108 lakh bales a year ago.
 Gujarat is expected to produce about 88 lakh bales in 2016-17 down from more than 1 lakh bales last
year while Maharashtra may produce 87 lakh bales in the current crop year from 78 lakh bales in
2015-16. Telangana and Andhra Pradesh is estimated to produce lesser crop this year at 48 lakh bales
and 15.5 lakh bales respectively.
 CAI estimated total cotton supply for the cotton season 2016-17 at 398 lakh bales, while the domestic
consumption is estimated at 309 lakh bales which leaving an available surplus of 89 lakh bales.

6. Cotton Update
Domestic Consumption steady, exports down
6
 As per USDA latest monthly report,
India's cotton consumption is projected to
remain stable at 5.2 million tonnes in 2016-17.
 The consumption is set to decrease because of
mills might increase the share of other fibers in
cotton-blended yarns due to higher and
fluctuating prices of cotton in domestic market.
 For 2016-17 season, exports of cotton from
India, the second largest exporter, are forecast to
fall by about 35% to 820,000 tons.
 The fall is exports is attributed to expectation of
lower demand from China and trade
disturbances with the neighboring Pakistan.
4,700
4,800
4,900
5,000
5,100
5,200
5,300
5,400
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Sep Oct
India Cotton Consumption ('000 tonnes)
Source: USDA
500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Sep Oct
India Cotton Export (1000 MT)
Source: USDA

7. Cotton Update World Cotton Production Forecast higher
compared to last year
7
 As per latest USDA monthly report, world cotton
production in 2016/17 is forecast at 22.4 million
tons (mt), slightly above the September projection
and nearly 7% higher than last year production
(2015/16).
 Cotton production is projected to increase in three
of the four top producing countries except China.
Production in India is forecast at 5.77 mt, up from
2015/16, while China cotton production is
projected to decrease by 4.6% to 4.6 mt.
 In 2016/17, U.S. production increase to 3.5 mt
while Pakistan’s cotton crop is projected to expand
to nearly 1.8 mt this season Vs 1.5 mt in previous
year. The world cotton yield is projected at 760 kg
per hectare in 2016/17, equal to the 5- year
average.
20,000
21,000
22,000
23,000
24,000
25,000
26,000
27,000
28,000
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Sep Oct
World Cotton Production ('000 tonnes)
Source: USDA
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
India
China
US
Pakistan
Brazil
Australia
Uzbekista
n
Top Cotton Producing Countries ('000 tonnes)
Source: USDA

8. Cotton Update
Global cotton stock to decrease
8
• The latest USDA, cotton estimates for 2016/17
project world cotton ending stocks to decline by
9.6% from the previous season to 19 million tons
(mt). Thus, global cotton stocks would drop to
their lowest level since 2011/12 due to back-to-
back reductions in world cotton.
• China continues to reduce the surplus cotton
accumulated during the 2011-14 seasons by
auctioning from the National reserves during May-
September 2016 and plans to resume auction
beginning March 2017. Thus, cotton stock to
decrease by 17.4% to 10.5 mt in 2016-17 season.
• China’s stocks at the end of 2016/17 are projected
to account for 55% of the world total. Meanwhile,
stocks outside of China are forecast to experience
modest increases of 2.2% to 8.55 mt.
20,058
22,493
24,286
21,033
19,554
19,018
19,000
20,000
21,000
22,000
23,000
24,000
25,000
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Sep Oct
World Cotton Ending Stocks (1000 MT)
Source: USDA
8,000
10,000
12,000
14,000
16,000
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Sep Oct
Cotton Ending Stocks (1000 MT) -
China Vs Outside of China
China Outside of ChinaSource: USDA

9. Cotton Update Limited World Consumption Growth
forecasted for 2016/17
9
• Global cotton consumption is forecast to increase
by 1.43% in 2016/17 to 24.4 million tons (mt) as
cotton continues to face price competition from
synthetic fibers.
• China continues to lead the world in cotton mill
use and projected at 7.73 mt or 109,000 tons from
last season’s estimate. India and Pakistan, is
expected to decline slightly.
• India is forecast at 5.20 mt in 2016/17, while
Pakistan is expected to use 2.22 mt, both about
1% lower than the previous year.
• However, cotton consumption in Turkey,
Bangladesh and Vietnam will increase by 1.52,
4.89 and 6.78% respectively. These three countries
account for a combined 16% of total consumption;
this compares with 10.5% just 5 years ago.
23,500
23,700
23,900
24,100
24,300
24,500
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Sep Oct
World Cotton Consumption ('000 tonnes)
Source: USDASource: USDA
0
2,000
4,000
6,000
8,000
10,000
China
India
Pakistan
Turkey
Bangladesh
Vietnam
UnitedStates
Top Cotton Consuming Countries ('000 tonnes)
Source: USDA

10. Cotton Update
Price outlook
10
• Cotton harvest has started and new kapas has arrived in the market. It will still be time
before peak arrivals start after diwali during the months of December and January next
year due to late harvest expected in Gujarat and Maharashtra.
• Cotton prices in futures market is trending down since one month however, still on higher
side at Rs.19,650/ bales. The prices are 25% higher as compared to last year prices during
the same period.
• The major factors which will decide cotton prices in coming months are the export and
domestic mill demand for Indian cotton. As per CAI and USDA, the cotton supply in the
domestic market will be sufficient as the export and consumption will be lower during the
current cotton season.
• Total availability of cotton in the country is pegged at 398 lakh bales versus estimated
consumption of 309 lakh bales. The export will be declined by 40% in 2016/17 to 849,000
tons compared to 12.55 lakh tons last year.
• We expect MCX cotton prices (CMP: Rs.19,640/bale) to ease a bit towards Rs. 18,500
while NCDEX Kapas (CMP: Rs.870/20 kg) can move lower towards Rs. 800 during the peak
arrival season in November and December.

11. Cotton Update
Published in FY 2012. © Angel Broking 2011-12
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11
RiteshKumar Sahu
Analyst- Agri Commodities
Landline: 022 3935 8165