US Cotton #2 Futures growers have suffered the worst losses in the past five years as whitefly and other diseases have hit the crops hard in the Hisar region, known as the cotton belt of Haryana.
Whitefly has caused losses to the cotton crop in Hisar, Fatehabad, Sirsa and Bhiwani districts. The farmers might have suffered the biggest ever losses since 2015 when whitefly had destroyed almost 70 per cent of the crop in specific parts of the region.
Hundreds of thousands of farmers have converged on New Delhi in the past weeks to protest the passing of a series of farm bills by Prime Minister Narendra Modi. Farmers from Punjab and Haryana, for now, are unwilling to trade the assured prices guaranteed by the MSP regime for the uncertainty that free markets may bring.
The government procures wheat and paddy at the MSP from farmers to meet its requirement under the food law and other welfare schemes. Till December 22, a quantity of 62,95,350 cotton bales valuing Rs 18,415.48 crore has been procured benefitting 12,20,588 farmers.
Cotton started the year with a high of 73 cents in January, then crashed down to an 11-year low of 50.18 in early April, and then it almost made it back to the January high by Oct. 28, peaking at 72.60.
President Trump is expected to sign the new stimulus package approved by Congress into law. The likely explanation behind cotton’s price recovery is something less related to pure supply/demand fundamentals and more related to speculative money flows. An influx of speculative/managed money took up ‘long’ or ‘buy’ positions in the cotton market at the exact time it was trading at 11-year lows.
The COVID-19 pandemic turned into a double whammy for the cotton industry. COVID-19 travel restrictions caused either delays or cancellations in getting foreign workers to the United States. With the new strain of the novel coronavirus that emerged in the UK spooking markets, cotton prices have fallen by Rs 600-700 per candy over the past two days. The price of the Shankar-6 cotton variety fell from Rs 42,200-42,900 per candy (356kg) last week to Rs 41,400-42,200.
Global financial markets are still unnerved by the new variant of the coronavirus that has been discovered in England. However, more and more medical specialists seem to be saying that there is not enough data to conclude anything except that this is simply another strain. A slowdown in economic activity and consumer spending as a result of COVID-19 took cotton prices sharply lower throughout the first quarter of 2020. Markets are in debate whether an economic recovery would be “L-shaped,” “U-shaped” or “V-shaped,” cotton went with the letter V.
While agricultural markets and the stock market recovered from the sharp losses early, the lack of any recovery bounce in cotton might be a sign that a more serious correction may be in order. However, the strong recovery overnight is a positive development. US Cotton acres may slide in 2021 as healthy soybean, corn and wheat prices draw growers away.
A combination of factors — US ban on Chinese cotton, a sudden surge in orders for garments, additional stocking up, increased exports to Tirupur’s competitors including Vietnam and Bangladesh — have resulted in a yarn shortage for garments exporters. USDA surprised the market over a week ago when it released its monthly supply and demand reports. The reports showed a significant drop in production of US Cotton and much reduced US ending stocks levels.
The reports were bullish and a move to the upper end of the 70 cents range is possible. Harvest is wrapping up amid drier weather conditions in West Texas and the Delta and Southeast. The weekly export sales report showed very strong demand once again last week. Export demand has held strong despite stay at home orders and weaker economies around the world. Traders now hope for even more demand later as the vaccines are given out and the world economies start to recover.