Presented by : Chowda Reddy Commodities Research Desk

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1 Fundamentals of Cotton Presented by : Chowda Reddy Commodities Research Desk 1

2 Introduction Cotton - King of Fibres (belongs to the order Malvales, family Malvaceae) Sowing : June - July, Harvest: September December Arrivals extend till April More than 25 varieties are cultivated in India Provides employment to 4-5 million people Classified based on Fibre length 1. Short staple 2. Medium staple 3. Long and Extra long staple 2

3 Staple Length Short Below 20.0 mm Medium 20.5 to 25.5 mm Medium Long 26.0 to 27.5 mm Long 28.0 to 33.5 mm Extra Long 34 mm & above Classification and percentage share Et Extra Long 2% Short 3% Medium 27% Long 51% Medium Long 17% 3

4 Cotton products Cotton Lint (Fibre) Seed Textile Oil (15%) Cake(83%) 4

5 Seasonality of Cotton Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec China US India Pakistan Brazil Uzbekistan Sowing Growth Stage Harvesting 5

6 Cotton production in India USDA estimated output in India at 314 lakh bales in Production increased by 35 lakh bales from last year Area increased by 4.13 lkhh lakh hectares to lkhh lakh hectares in Gujarat lakh bales and Maharashtra - 70 lakh bales Annual output growth rate 10.76% between & Bt Cotton occupies about 40% total cotton area 6

7 India Cotton Balance sheet Quantity in Lakh bales Particulars Beginning Stocks Production (Lakh bales) Imports Total Supply Exports TtlD Total Dom. Cons Ending Stocks Stock to Use % Source: USDA 7

8 Major producing states Cotton Production share of States MP 7% Haryana 6% Others 7% Gujarat 38% Punjab 10% Andhra Pradesh 13% Maharashtra 19% Gujarat Maharashtra Andhra Pradesh Punjab Madhya Pradesh Haryana Others 8

9 Domestic consumption Lakh bales Consumption Mill consumption Small Mill consumption Non-Mill consumption Total consumption Export Total disappearance Sources : CAB 9

10 World production Global production estimated at 152 million bales in down from 156 million bales last year China is largest producer and contributes to one-third of total global output India and US are other major producers and has share of 36% India has overtaken US in terms of output during China is largest consumer (38%) 10

11 World CottonBalance sheet Million bales Area (Mln Ha) Beginni ng Stocks Productio n Imports Total Supply Exports Ending Stocks Stock to Use % 2000/ / / / / / / /

12 Major producing countries Lakh Bales Country China India USA Pakistan Brazil Others Total

13 Textiles Textile Fibres Natural Fibres Man made Fibres Plant (Cellulose) Cotton Animal (hair.cocoon) Organic Inorganic (carbon, ceramic & glass) 13

14 Cotton Textiles Cotton accounts for 60% of textile consumption Cotton textiles exports Rs crores in Cotton constitutes 34% of total textile exports India s textile industry likely to grow at 16% to $115 billion by 2012 Man made Fibre is competitor for Cotton 14

15 Cotton Textiles Man-made Fibre production has almost doubled during to 32 million tonnes, while cotton output increased by 31% to 25 million tonnes Consumption of Man-made Fibre has increased at an annual rate of 4.7% in global market, while cotton rose by 1.8% per annum between 1960 and 2002 Trade quotas abolished in 2005 by developed countries 15

16 Kapas khali Seed separated from cotton is further processed and byproducts are kapas kali (oil seed cake) and oil Crushing starts from October and extends till June Oil seed cake (82-85%), oil (12-14%) and wastage (2-3%) Cake used as cattle feed and oil used for edible purpose Demand comes from Gujarat and Rajasthan Most of the oil seed cake consumed domestically 16

17 Domestic scenario of Kapas khali (Qty in Million tonnes) Year Crush Production Exports (1000 MT) Domestic consumption Source: USDA 17

18 NCDEX contract specifications Name of Commodity V 797 Kapas Basis Ex- warehouse Surendernagar (Exclusive of all taxes ) Unit of trading Quotation/base value Tick size Trading month Delivery center Delivery 1 lot (200 maunds of 20 kg each i.e. 4 MT) Rs. Per 20 kg 10 paisa Contract for March, April and May expiry next year will open for trading in May 10, of preceding year Surendranagar (Gujarat) Sellers option MCX contract specifications are similar Bandhini contract price limit is Rs Rs

19 Name of Commodity Ticker Symbol Basis Unit of trading Shankar Kapas contract specifications SHANKAR Kapas SHANKRKPAS Average of spot prices of the following stations Rajkot, Gondal, Kadi, Vijapur (Exclusive of VAT) 1 lot (200 maunds of 20 kg each i.e. 4 MT) Dli Delivery unit 1 lot (200 maunds of 20 kg each i.e. 4 MT) Quotation/base value Tick size Rs. Per 20 kg 10 paisa Quality specifications i Raw Cotton 1. Staple Length Basis : mm Delivery center Rajkot and Kadi (Gujarat) at Par Additional Delivery centers Position limit Goods meeting contract specifications may also be delivered at Guntur and Akola. The locational Premium/Discounts for Akola and Guntur will be announced before the launch of the contracts. Member: Maximum of 75,000 MT for all contracts Client: Maximum of 15,000 MT for all contracts 19

20 NYBOT Cotton 20

21 Prices of Lint cotton (S 6) 24,000 22,000 Price per Can ndy 20, ,000 16,000 14,000 12,000 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Source: Cotton Corporation of India 21

22 Cotlook Index A The COTLOOK A INDEX is representative of the level of offering prices on the international raw cotton market It is an average of the cheapest five quotations from a selection (currently 19) of cotton traded globally 80 Monthly Average Cotlook A Index August September October November December January February March April May June July In US Cents per 22 lb

23 Cotlook Index A Cents per Lb 23

24 NYBOT Cotton Cents per Lb 24

25 Kapas NCDEX April contract Supports 505, 485 and Resistance 545,

26 NCDEX Cocud May contract Supports 377, 334 and Resistance 476,

27 Factors to be watched out Global cotton output estimated at 152 million bales during marginal lower than 156 million bales in Cotton output India estimated at 314 lakh bales in higher than 279 lakh bales in India exported 65 lakh bales in and this year these exports are likely to touch 10 million bales (already 78 lakh bales exported) Strong export demand seen from China and Pakistan Arrivals of cotton declined to below one lakh bales from 2.5 lakh bales in December Current arrivals are around bales 27

28 Factors to be watched out (contd ) Cotlook A Index made 10 year high of 92 cents Correction between NCDEX Kapas and NYBOT Cotton: 0.8 NCDEX and MCX have contracts for V variety, but it has less than 5% of total cotton output t Factors influencing the prices Production (both domestic and global) Arrivals in domestic markets Exports from India Global prices (NYBOT and Cotlook A Index) 28

29 Price outlook Cotton prices have moved up by Rs.170 per 20 Kgs (NCDEX April) and Kapas khali prices also moved by Rs. 120 per 20 kgs (NCDEX March) in the last 3-4 months Global l cotton prices made 10 years high h of 92 cents per Lb Prices are likely to take some correction in near term Long term sentiments still remain strong with lower global output Cotton prices may touch Rs per candy in long term Kapas khali prices may touch Rs.1000 per quintal in 4-5 months 29

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