Cotton This Month 03 April 2023

Indian Farmers Might Be Holding Their Cotton but Global Production Remains Stable

In this edition of Cotton This Month, we will examine the current situation with delayed cotton arrivals in India and how this may affect the global balance sheets in the 2022/23 season.

India has always been at the top of the list of total area under cotton production, with the most recent season being recorded at 13,000 thousand hectares. However, production has been consistently lower than in countries with far fewer hectares under cotton. This is a function of low yields that are the result of too many factors to get into in this article. Despite India’s chronically low cotton yields, however, it still manages to maintain the number two spot when it comes to total cotton lint production. We are currently reporting India’s production at 5.2 million tonnes.

In the December issue of CTM, we reported on India’s low arrival numbers and reduced our production estimates by 391,000 tonnes. To give that some context, the November arrival numbers were on pace with historical records from past seasons. We continued to follow the arrival reports closely and with continued low numbers being reported by the Indian Agricultural Ministry for January and February, we lowered India’s production by another 257,000 tonnes. We speculated that cotton farmers were likely holding their cotton back in an effort to try and maximise the price they received for their seed cotton.

Having just come off near record-high prices and very high levels of consumption demand, farmers were likely having a hard time grappling with the recent fall in price and reduced consumption caused by pervasive fear of global economic uncertainty. While there have been some weather- and pest-related problems in India this season, we are cautiously confident with production numbers in the range of 5 million to 5.2 million tonnes.

When we plot the data for the cumulative sum arrivals over the past four season, it is hard not to react. The picture is alarming, no doubt. But when we dig into the most recent numbers, we see a different story starting to emerge and this story may be good news for the Indian cotton sector.

The March arrival numbers have picked up the pace and are currently ahead of March arrivals for the past several seasons. A plot of the past 23 years of Indian arrivals numbers can be seen in the plot below. While it is too early to know if the April numbers will outpace past seasons, our initial story of farmers holding cotton for higher pricing may in fact be what we have been observing in the data. The price has stabilised slightly over the past few weeks and farmers may be starting to realize that accumulated debt will start to outpace any income they can gain by holding the cotton in storage. The April numbers will complete the story, I think.

If the April arrival numbers are not significantly higher than past season, we will need to — once again — revise down our production numbers for India. There were high hopes for a large crop at the beginning of the season and by all accounts, 5.2 million tonnes is not a bad number, from a historical perspective. However, if our story turns out to be false and there is truly some unknown reason for the cotton not making it to market, this will be a true catastrophe for the Indian cotton sector, farmers in particular. We will continue to follow the data and report on the situation as more information becomes available.

Global production remains stable at 24.55 million tonnes. Depending on the outcome of the Indian cotton situation, I expect production to continue to remain at the current level through the end of the season. Global consumption remains below production and is not expected to increase in the remaining four months of the season. I also do not expect it will decrease much below the current level of 23.80 million tonnes, but that depends on the state of the global economy. Inflation in most developed countries continues to remain stubbornly high, albeit lower than it has been. Federal reserve bankers continue to raise interest rates in an effort to reduce inflation and the ever-present question remains: Will they be successful in reducing inflation without tipping into a recession? Only time will tell.

No doubt the next edition of CTM will focus on the Indian crop as well. It should become clear which direction the situation is heading and either way it will require analysis to understand what the data is indicating. We are witnessing an unprecedented situation where there appears to be cotton available in significant quantities that is simply not making it to market. This fact is easy to see as we simply track the data. The bigger question is always the why behind the what.

We will continue to research the situation and bring the analysis to you as the situation continues to evolve. For the most up-to-date statistics please refer to the ICAC Data Dashboard. The dashboard is updated with new data constantly and that new information is immediately reflected in the Dashboard, making it a valuable, up-to-date resource all month long.

Price Projections1

The Secretariat’s current price forecast of the season-average A-Index for 2022/23 ranges from 99.80 cents to 122.12 cents, with a midpoint at 103.71 cents per pound.