Precipitous fall in cotton prices

August 23, 2013


cotton prices
cotton prices

After an extraordinary bout of volatility which saw cotton prices rise and fall by Rs 400 to Rs 500 per maund (37.32 Kgs) within the short span of a single week, the market is now back to square one being the level from which the prices started to climb up. The up and down in New York cotton futures (ICE) prices tells a similar story.

In Pakistan, the bullish bout in cotton prices was mainly due to the fear that monsoon rains and floods may have inflicted sizeable damage to the standing crop. Then when the speculative long positions in New York futures came for profit taking, prices reportedly fell from 94 to about 84 cents per pound, nearly a crash seen with in a couple of days time. Pressure on cotton prices has not yet relented.

Over the past week or ten days, there have been torrential rains and furious floods in many parts of Pakistan. Cotton belt also received heavy rains and many areas adjacent to the riverbeds were inundated. However, as of date no mentionable damage has been reported to the cotton crop which is projected to yield about 13.25 million bales during the current season (August 2013-July 2014).

There have been some reports that a certain portion of the crop has problem with colour which is due to infusion of some moisture or moist weather. It is presently being assessed that the problem should go away with clement weather. However, in case of continuous rains, quality problems in the fibre may crop up later on. It is believed that if there was rain/flood damage in the kutcha (riverine) areas to the cotton crop during the previous week, some countervailing benefits may also have accrued in other areas, thus keeping the balance. Yarn prices are workable even if they are not bullish.

On Thursday, the seedcotton (Kapas/Phutti) prices in Sindh reportedly ranged from Rs 2750 to Rs 2850 per 40 Kgs, while in the Punjab they were said to have obtained in the range of Rs 2600 to Rs 2900 per 40 Kgs, according to the quality. Lint prices in Sindh were said to have ranged from Rs 6600 to Rs 6700 per maund (37.32 Kgs), while in the Punjab they are reported to have extended from Rs 6650 to Rs 6800 per maund in a stressed market.

It is estimated that by the end of this month, viz 31st August 2013, seedcotton (Kapas/Phutti) equivalent to about two million bales from the current crop will have arrived at the ginning factories. Business was reported to be sparse as traders and mills were trying to settle their earlier contracts some of which ran into snags due to heavy and extraordinary volatility in the market.

In the evening, sales of 200 bales of each cotton from Mirpurkhas and Sanghar and 400 bales from Shahdadpur in Sindh, all were said to have been sold at Rs 6650 per maund (37.32 Kgs) in a rather subdued market. Not much business was being reported as prices of cotton had fallen extraordinarily.

On the global economic and financial front, no solid indication of a meaningful turnaround is being reported for any country which could assure us that worst is over. Almost everything primarily is revolving around the much anticipated policy of the United States Federal Reserve which props up equity markets to the tune of trillions of dollars of easy money available not only in America but in sundry bourses in the emerging markets and even in countries which are not working on a sound footing.

Take Greece as an example. The German Finance Minister Volfgang Schaseuble has divulged early this week that Greece will need another package or doleout to avoid further and serious damage to its economy and default during the period 2014 to 2016. European Central Bank functionaries will be visiting Greece over the next few weeks and months to plug the hole in the Greek finances.

The economic problem of the peripheral countries in eurozone fails to go away. It is hard to believe that a recent betterment in the Chinese manufacturing sector or a marginal increase in the hitherto unmanageable Eurozone growth will remedy the problem of global growth at large.

The very mention of tightening of the interest rates by the US Federal Reserve rattles the stock markets from Brazil to India. Moreover, an outflow of capital from the emerging markets and also the other developing countries could result in an economic fiasco in Asian and South American markets. For instance, the Indian rupee has reached a new nadir against the US Dollar by sliding down to 64.13 rupees last Tuesday.

Moreover, the Federal Reserve Chairman Ben Bernanke is keeping all his ideas and decisions, if any, up his sleeve which is irritating the markets and also breeding speculations in currencies and commodities at large. Unemployment continues to remain higher in the United States. Bankers from all over the world were due to meet in Jackson Hole, Wyoming on Thursday and will be keenly watching as to when and how much the economic stimulus will be cut or curtailed. Among the attendees at Jackson Hole will be Janet Yellen, a leading contender for the top job at Federal Reserve to succeed Ben Bernanke. Traders want to learn the leanings of Yellen to be able to project what she may want if she is inducted to the Federal Reserve chairpersonship.

At approaching weekend, some restraint was seen in share prices which had experienced a series of losses over the preceding sessions. Investors have naturally been bearish over the past several sessions as the decisions to curtail stimulus measures will certainly push stock prices over a downward path. Courtesy Business Recorder

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