Informist, Thursday, Jul 4, 2024

By Taniva Singha Roy

MUMBAI – Cotton acreage in Gujarat and parts of northern India has seen a substantial decline with farmers shifting to more lucrative crops like oilseeds, market participants said. The fall in acreage in Gujarat, India's top cotton-producing state, could lead to a sizeable loss of output at the national level, they added.

In Gujarat, cotton sowing is likely to decline by 12-15% this year, Atul Ganatra, president of the Cotton Association of India, said. Sowing of cotton in the current kharif season is 40-60% lower in Rajasthan, Haryana, and Punjab, Ganatra said. In Rajasthan, the area under cotton as of Tuesday was at 444,790 ha, down from 732,710 ha, according to a release from the state agriculture department.

The cotton sowing area in the northern belt has fallen by about 20-25% in 2024-25 and in Gujarat it is likely to fall by up to 15% with farmers shifting to crops such as groundnut and maize that fetch better prices, said Biren Vakil, founder of Paradigm Commodities. Groundnuts bring farmers 50,000-60,000 rupees per acre, while kapas fetches only 20,000 rupees per acre, Ganatra said.

With demand for cotton mostly based on immediate need and ginners operating at a loss, farmers are shifting to other crops. Labour is also migrating to construction sites that pay more than for work in cotton fields. Additionally, the cotton crop takes six months to mature, thus occupying the land for a long time, which is why farmers are shifting to crops of shorter duration, said Manish Daga, president of the All India Cotton Farmers Producers Organisation. "Cotton farming is no longer rewarding," Vakil added.

While the sowing area has fallen in some states, it is seen rising in states such as Telangana and some parts of Maharashtra. In Telangana, some chilli farmers are shifting to cotton cultivation as prices of the spice have weakened, sources said. But the large gap created by the fall in area in Gujarat cannot be filled as the state's share in the country's cotton output is the largest, said Vakil. Gujarat contributes 35% of the country's total cotton production.

There is a possibility that cotton acreage will rise if rainfall is scanty, as cotton is less water-intensive than some other crops. But an increase in acreage does not necessarily mean higher yield. "Fake and spurious seeds are causing yield losses," Vakil said. Production in India in 2024-25 (Oct-Sep) is seen at 25 mln bales, down 1 mln bales from the previous year, according to the US Department of Agriculture. The total area under cultivation in India will only be clear in the last week of the month. "If we want to see the actual total sowing, we need to wait until July 20-25," said Ganatra.

The government figures on areas under various kharif crops show a sizeable increase. As of Friday, the area under cotton across India was estimated at 5.9 mln ha, up 63% from 3.6 mln ha as of Jun 28, 2023. However, experts say it is still early in the sowing season and the situation could change.

If output falls owing to a decrease in sowing area, it could increase the need for imports, said market players. Cotton production in India has been decreasing over time. In Jun-Aug 2023, the area under cotton was 12.34 mln ha, against 12.75 mln ha in the same period in 2022. “If this continues and the 11% import duty is waived, India will soon be a net importer of cotton from being one of the largest exporters," said Daga.

Besides, Indian cotton is costlier than its competitors, so imports would be more profitable for ginners, Daga said. Cotton futures for December on the Intercontinental Exchange are trending lower at 73 cents per pound, or about 51,000 rupees per candy. "Cotton prices in India are around 58,000-59,000 rupees per bale (1 bale = 217.72 kg), while imports will only cost around 55,000-57,000 rupees per bale," Daga said.

PRICE OUTLOOK

Local prices of cotton are already higher than global prices, and with acreage falling, prices could move up further. "If arrivals decline further due to delays in the monsoon, then we can see prices rising up to 70,000 rupees per bale or even more in the near term," said Vakil. The arrivals of cotton in the market in the season that began on Oct 1 were at 21.6 mln bales until March, compared with 29.7 mln bales in the same period in the previous year.

According to trade sources, the scope for arrivals in the remaining months of the season is limited. By the end of February itself, around 75% of the total estimated cotton crop had arrived, and only 7.5-8.0 mln bales were yet to come. This is contributing to the surge in prices, Ganatra said.

The situation has hurt ginners the most, as their profit margin is shrinking. "The price of kapas along with the additional cost of ginning leaves us with a low profit margin," complained one ginner. With prices seen rising further, many are holding on to their stocks.

Globally, the price of cotton has declined as availability is seen improving. The US Department of Agriculture has raised its estimate for global cotton output in 2024-25 (Aug-Jul) by 90,000 bales to 119.14 mln bales due to higher area and yield in Myanmar. End

US$1 = 83.49 rupees

Edited by Rajeev Pai

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.