After buoyant 2021, cotton prices to spin down in 2022

The year 2021 has turned out to be one of those rare occurrences for the entire cotton sector, when almost all of the value-chain participants could make extraordinary returns.

The gains ranged from a healthy 44 per cent to an exuberant 105 per cent, giving a reason for cotton growers, ginners, spinning units, garment makers and exporters to bid a cheerful adieu to 2021.

According to Vinay Kotak, Director, Kotak Ginning and Pressing Industries, “It can be said that this was one-of-a-kind year in many years that entire value-chain has made money.”

The factors influencing the price include excessive rains, delay in harvest and late arrivals, while a strong revival in demand from spinning mills and cloth makers further fuelled the prices during the year.

Strong rally of 2021

Notably, in the post-lockdown scenario, the Indian cotton industry started the year with a huge carry forward stock of around 125 lakh bales (each of 170 kg). This had brought down the prices in the domestic market making Indian cotton cheapest in the world. This fuelled domestic consumption as well as exports, with 78 lakh bales shipped — a record in past five years. As a fallout of the release of pent-up demand, the prices started heading north. Raw cotton (kapas) prices hit through the roof crossing ₹9,700 a quintal towards the end of the year.

Domestic prices were also influenced by the international rally. ICE March 2022 Futures shot up from 78 cents a pound earlier in 2021 to 119 cents towards the end of the year. While some find this to be a speculative rally on ICE, others attribute it to the global revival in the demand following unlock measures and release of a pent-up demand with revenge consumption after a year of global lockdowns in 2020.

The global cotton body, International Cotton Advisory Committee (ICAC), also noted that cotton prices were the highest in a decade after the international reference price of cotton rose dramatically during the 2020-21 season (October to September) and continued its rise into the 2021-22 season.

“Prices are expected to be volatile through the remainder of the 2021-22 season but it is unlikely they will climb much higher than the current point. The ICAC Secretariat does not expect prices or volatility to reach those of the infamous 2010/11 season, when prices ascended all the way to 243.65 cents per pound,” it noted.

More acreage

So, what’s in store for cotton in 2022?

The trade estimated India’s cotton output for 2021-22 at 360 lakh bales against 353 lakh bales last year. Further, there are uncertainties on exports as prices continue to stay above international markets making Indian cotton uncompetitive. Currently, Indian cotton prices hover around ₹ 69,000-70,000 a candy (each of 356 kg of processed ginned cotton). “There is no demand for exports at these high rates. So we may not achieve the targeted exports of 48 lakh bales and may export somewhere around 35 lakh bales. So, after April/May we may see prices come down in the coming year,” said Atul Ganatra, President, Cotton Association of India (CAI).

Further, the persistently higher prices during 2021-22, will encourage farmers to turn to more of cotton cultivation next year in 2022-23, sowing for which starts from June. “We will see groundnut and soybean farmers turning to cotton. So at least we will see an increase in cotton acreage by 10 to 15 per cent and globally also, we will see a similar phenomenon of a switch towards cotton cultivation and there will be 15-20 per cent more cotton acreage next year,” added Ganatra.

The higher acreage would result in increased output causing prices to soften next year. The ICE March 2022 futures currently quotes at 111 cents a pound, whereas ICE March 2023 Futures is 88 cents. “So we expect a downward trend in the prices from here on,” he added.