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CCI Gears Up For Export First Time thru Government Channel, But Higher Price Big Issue

28 Sep 2020 11:52 am
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NEW DELHI (Commoditiescontrol) Cotton Corporation of India (CCI) is gearing up to export cotton to Bangladesh first time through government to government channel. A senior official of CCI expected to have deal with Bangladesh very soon. But price implication and economic consideration may disrupt the plan because domestic and international cotton prices are not favourable for the government’s cotton trading company.

Dr. S. K. Panigrahi, Chief General Manager of CCI told that negotiations was going on for cotton export to Bangladesh through government to government channel. A deal will be finalized very soon and CCI will be able to export large quantity of cotton under the deal. But he did not disclose expected quantity of cotton which may be exported. He also did not divulge any information about pricing aspect as it was trade secret as he mentioned.

As far as concerned of quantity of cotton, market experts expect that CCI may export 10-15 lakh bales of cotton through this deal if it goes through. But pricing issue is more complicated. CCI is selling cotton in international market through auction at US Cent 69.80 per pound (FOB) at Rajkot. It comes at Rs. 38000 per candy (each 356 kg) which is little higher price than open market price of Rajkot at around Rs. 36000-37000 per candy. Although, the government’s cotton trading company was incurring loss of around Rs. 9000 per candy as per it’s procurement price and ginning cost. If CCI gets a deal at Rajkot FOB price, Indian cotton will cost at Bangladesh port at Rs. 38800 (in Indian currency) which is not viable for Bangladesh As ICE December cotton was closed on Friday at US Cent 65.95 per pound. During last week, ICE December cotton and March 2021 cotton came down 0.2 and 0.63 percent respectively. Cotlook Index also down by 0.77 percent. While, India cotton October contract increased 0.77 percent at MXC. Indian cotton spot prices are also northward. It shows that disparity is increasing for cotton export.

As per market experts, Indian government and CCI have limited options to solve this issue. If offer price is reduced, CCI will have to incur more loss. It has already incurred loss of Rs. 12,000 crores in this season. Secondly, If CCI finalizes deal at lower price, Indian cotton prices will be distorted in global market which will be serious problem for Indian traders who purchased cotton from CCI at higher prices. The only hope of improvement in prices of cotton at international market.

But the government and CCI has little time to wait for export as it was sitting huge stock of cotton. It had procured 115 lakh bales (each 170 kg) out of total production of 355 lakh bales. It means, CCI could manage to off load (mostly in domestic market) only 58 lakh bales. So it is sitting of stock of around 57 lakh bales. Although, CCI is trying to export cotton through E-auction but it could not succeed. It had invited importers in last week for E-auction but It did not get any proposal. Dr. Panigrahi confirmed about it.

It is expected that government may ask CCI to begin cotton procurement earlier because it is facing farmers’ protests across the country against Farm bills. It want to pacify the farmer through better procurement. Another challenge is larger cotton crop this year. As per First Advance estimate of current Kharif season, Cotton production will be 371.2 lakh bales in this year. It will be 16.3 lakh bales higher than last year. It means, CCI has to be ready to buy more cotton.

Lower prices in open market indicate about possible higher pressure on CCI’s procurement. Gujarat based exporter Mr. Chetan Bhojani, explains, CCI will procure Kapas (Unginned cotton) at Rs. 5515 per quintal (medium stable). if price difference between MSP and open market rate remains within Rs. 500-600 per quintal, farmers may come to open market. But the difference is wider, farmers will go straight to CCI’s centres. As per current cotton price, Kapas prices come over Rs. 4500-4800 per quintal. If ginning mills buy Kapas over this price, they will have to incur losses as per current cotton prices. Mr. Bhojani says that It will be better to keep ginning mills closed instead of buying Kapas at higher price. Current cotton price will give ginners only losses. Although, Indian cotton prices are cheaper than many other countries, but higher portion of wastage (over 10 percent) makes it expensive. The only hope is that cotton price to rise in international market so the export becomes viable and Indian market prices also improve. But it is not clear whether it will happen.

(By Commoditiescontrol Bureau: +91-22-40015505)

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