Cotton price drops on lower demand, increase area under cultivation

The government has allowed mills to operate but markets are closed so mills are facing a cash crunch. -

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June 03, 2021 Cotton futures traded lower at Rs 22,110 per bale on May 14 as participants trimmed their positions as seen from open interest. The Agri commodity traded in the red after a gap-down start despite the firm global trend and stronger rupee.

India’s cotton output in the 2020-21 (October-September) market year is seen at 38 million bales, up 4 percent on the year.

The country’s cotton exports are likely to be 20 percent higher at 1.02 million tonnes in 2020-21 (October-September) backed by competitive pricing in the global markets and an improvement in international cotton consumption, said Care Rating. Higher exports along with a recovery in domestic cotton demand will help reduce the surplus availability of cotton in the nation despite higher supply, the rating agency said in a note.

Sunand Subramaniam, Senior Research Associate, Choice Broking said, “We expect MCX Cotton futures to trade bearish as cotton farmers from various states are planning to increase the area under cultivation in the coming 2021-22 Kharif season. Indian textile mills have reduced production due to lower domestic demand and labour shortage.”

“The government has allowed mills to operate but markets are closed so mills are facing a cash crunch. Textiles mills dealing in exports are still going strong as Indian yarn prices are attractive. Cotton arrivals are very low due to COVID cases and lockdown in many parts of the country”, Subramaniam added.

In the futures market, cotton for May delivery touched an intraday high of Rs 22,130 and an intraday low of Rs 21,840 per bale on the MCX. So far in the current series, the commodity has touched a low of Rs 20,680 and a high of Rs 22,950.

Cotton futures for May delivery eased Rs 150, or 0.67 percent, to Rs 22,110 per bale at 16:46 hours IST on a business turnover of 6,250 lots. The same for June contract slides Rs 130, or 0.58 percent at Rs 22,410 per bale with a business volume of 3,132 lots.

The value of May and June’s contracts traded so far is Rs 30.77 crore and Rs 11.52 crore respectively.

Technical

The soft commodity has been trading higher than 5, 20, 50, 100 and 200 days’ simple moving averages (SMA) and exponential moving average (EMA) on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 58.37 which indicates strong movement in prices.

At 1116 (GMT), US Cotton futures rose 1.01 percent quoting at 85.84 cents/pound on Intercontinental Exchange (ICE).

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