Annual Report 2022/2023

"Navigating Challenges: A Recap of the 2022-23 Indian Cotton Market Season"

The Indian cotton market in the 2022-23 season witnessed a series of unique challenges and fluctuations, impacting both cotton mills and farmers. Here we provide an overview of the season, highlighting key events and factors that influenced cotton prices and market dynamics.

1. End of the Previous Cotton Season: The previous cotton season concluded on a challenging note for mills. Several factors, including high cotton prices, lower demand and issues related to cotton quality, contributed to these difficulties.
2. Inventory Situation: As September came to a close, most mills faced two choices: they either ceased cotton consumption entirely or reduced their production capacity and working hours. This decision resulted in low or zero inventory levels, setting the stage for a challenging start to the new cotton season.
3. Expectations for the New Season: Anticipations of a significant drop in cotton prices at the beginning of the new season did not materialize as expected. Several factors played a role in shaping the initial market conditions:

1. Low or Zero Inventory: Mills entered the new season with minimal or no inventory, presenting operational challenges.
2. October Surge: In October, closed mills resumed operations and began purchasing cotton, leading to a sudden surge in demand and an accompanying rise in cotton prices, from 63,000 Rs per candy to 71,000 Rs per candy in a short period.

4. Battle Between Farmers and Consumers: From November to May, a historic battle unfolded between cotton farmers and mill consumers. Farmers held onto their cotton, while mills hesitated to build inventory. Despite the struggle, cotton prices remained relatively steady between 61,000 Rs per candy to 63,000 Rs per candy, with a brief dip in December last week linked to NY futures.
5. Market Shift in May to August: In May, disillusioned cotton farmers decided to sell their produce, contributing to a downward trend in cotton prices. This selling pressure led to prices fluctuating between 56,000 Rs per candy to 60,000 Rs per candy, reflecting the challenges faced by farmers and the market's response.
6. Improved Conditions in the Last Month: The final month of the season saw some improvement in cotton prices, with rates ranging from 61,000 Rs per candy to 62,000 Rs per candy. These improvements were attributed to changes in futures and a slower supply.

Conclusion: The 2022-23 Indian cotton season was marked by a rollercoaster of events, from inventory challenges to battles between farmers and consumers. Various factors, including supply and demand dynamics, influenced cotton prices throughout the season. Despite the tumultuous journey, the cotton industry navigated these challenges, offering lessons for future seasons and highlighting the resilience of the market.

"Insights from Cotton Farmers: Lessons in Agricultural Market Behaviour"

The behaviour of cotton farmers in selling their produce during the current season can indeed serve as a valuable lesson and insight into the dynamics of agricultural markets. Here are some lessons that can be drawn from their actions:

1. Price Sensitivity: Cotton farmers are highly price-sensitive and make decisions based on the prevailing market conditions. Their willingness to sell when prices didn't meet their expectations highlights the importance of price as a key factor in their decision-making process.
2. Market Timing: The timing of farmer selling can significantly impact market trends. When a large number of farmers decide to sell their crops simultaneously, it can lead to shifts in supply and demand dynamics, influencing market prices.
3. Market Sentiment: Farmer actions are often influenced by market sentiment and their perceptions of future price movements. In this case, when farmers lost hope of getting better prices, they chose to sell, which contributed to a downward trend in cotton prices.
4. Market Volatility: Agricultural markets, including the cotton market, can be volatile and subject to fluctuations based on a variety of factors, including weather conditions, global demand, and geopolitical events. Farmers must adapt to these changing conditions.

These lessons highlight the complex and dynamic nature of agricultural markets and the critical role that farmers play in shaping those markets through their decisions and actions.

15-Year Low Export of Raw Cotton in current year

We are now discussing the decline in Indian cotton exports during the 2008-2009 recession and the current year, where exports are lower than they've been in the past 15 years. Let's further explore the factors contributing to this decline:

1. Recession in 2008-2009: The global economic recession that occurred during this period likely had a significant impact on Indian cotton exports. Reduced consumer demand worldwide can lead to a decrease in the demand for textiles and, consequently, for raw cotton.
2. Current Factors Contributing to Lower Exports:

15-Year Low Export: If this year's exports are at a 15-year low, it suggests that a combination of the factors mentioned above, along with other domestic and international factors, has contributed to this decline.

3. Indian Basis was Higher Continuously During the Year: The "basis" in the context of commodities like cotton usually refers to the difference between the local price and the international price. If the Indian basis remain consistently higher, it makes Indian cotton less competitive in the international market. This led to a decrease in exports which happened this season.
4. Interrupted Flow of Arrival Due to Farmers' Reluctance to Sell at Lower Rates: This factor highlights the impact of farmer behavior on exports. When farmers are not willing to sell their cotton at prevailing international prices, it can lead to a shortage of supply for export. Farmers might hold onto their cotton in the hope of getting better prices later.
5. Increasing Consumption in India and Production Not Able to Increase in the Same Manner: If domestic consumption in India is on the rise, it can reduce the quantity available for export. If cotton production is not increasing at a similar rate, it can further limit the surplus available for export.
6. Domestic Factors: It's essential to consider domestic factors such as cotton production levels, farmer decisions, and domestic consumption patterns. If production is stagnant or declining while domestic consumption is rising, this can limit the surplus available for export.
7. Competitive Factors: Competition from other cotton-producing countries, changes in quality standards, and evolving preferences among international buyers can impact India's cotton export performance.

Overall, these factors indicate a challenging environment for Indian cotton exports. A combination of domestic factors (such as farmer behavior and domestic consumption) and international factors (such as the global cotton market conditions) can influence export quantities.

Indian Import remained relatively high despite 11% import duty

We are discussing the reasons why Indian cotton imports remained relatively high at around 13 lakh bales despite an 11% duty. Let's break down the factors:

1. Duty-Free Trade with Australia: The Free Trade Agreement (FTA) between Australia and India likely allowed for duty-free imports of cotton from Australia. This preferential trade agreement can lead to increased imports from Australia, as it makes Australian cotton more competitively priced in the Indian market.
2. Unavailability of E.L.S. Cotton in India: E.L.S. (Extra-Long Staple) cotton is known for its high quality and is often used in the textile industry for producing fine fabrics. If India faced a shortage of E.L.S. cotton domestically, it would necessitate imports to meet the demand from textile manufacturers. Importing E.L.S. cotton might be a strategic choice to maintain the quality of Indian textile products.
3. Carryover Arrivals from the Previous Season: The arrival of around 4 lakh bales in India after September, but counted in the current year's statistics, suggests that there was carryover or late arrival of cotton from the previous season. These stocks would be included in the current year's import figures, even though they originated from the previous year's contracts.

It's important to note that the dynamics of cotton trade can be influenced by various factors, including trade agreements, domestic supply and demand, quality requirements, and timing of arrivals. These factors collectively impact the decisions of textile manufacturers, traders, and importers.

Trade agreements like the Australia-India FTA can significantly affect the volume and origin of cotton imports, as they provide preferential access to specific markets. Additionally, the availability of certain types of cotton, like E.L.S., can drive imports to meet specific quality requirements.

The maintenance of relatively high cotton imports in the face of import duties indicates that these factors, among others, played a role in shaping India's cotton import patterns during the period in question.