March 14, 2012 / 9:43 AM / 5 years ago

UPDATE 1-India cotton arrivals fall, farmers hope for higher prices

MUMBAI, March 14 (Reuters) - Indian cotton farmers are holding back their latest crop in the hope of higher government prices after domestic levels slid 50 percent in the last year and now a ban on exports threatens to cut revenues further.

Arrivals of product at domestic spot markets from Oct. 1 to March 11 fell 6.4 percent to 23.73 million bales of 170 kg each versus 25.35 million bales a year earlier, the state-run Cotton Association of India said on Wednesday.

Despite the slow arrivals so far, the cotton harvest in the current season is expected to be a record 34.5 million bales, according to the government data.

India, the world's second-largest producer of cotton, currently prohibits fresh exports after a week of policy disputes triggered by a total ban imposed by the trade ministry on March 5 left some exporters without product to fill commitments.

Overseas sales, despite weak demand in a global market facing oversupply, had already hit a record and outstripped government estimates of 8.4 million bales for the whole cotton year, which runs from October to September.

"The ban on fresh cotton exports could depress prices further. Farmers are hoping that government might intervene by increasing the MSP to prevent a further decline in prices," said Arunbhai Dalal, a trader based in the western state of Gujarat, the biggest producer of fibre in the country.

Raw cotton prices in India have more than halved from a record high of 7,000 rupees in March 2011. Prices are currently hovering near the government's minimum support price (MSP) of 3,300 rupees per 100 kg.

Cotton ended 2011 as the worst-performing commodity of the year, falling 37 percent from 2010 after record prices had boosted output and decimated demand, while a shaky global economy scared off investors. (Reporting by Deepak Sharma; Editing by Jo Winterbottom)

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