JALGAON, India (Reuters) - Indian traders have been struggling to sign export contracts for the new season crop as local prices are prevailing above global prices after New Delhi raised the minimum buying price to support farmers, an industry official said.
Lower exports by the world’s biggest cotton producer in 2019/20 season starting from Oct. 1 could support global prices and help rivals such as the United States and Brazil increase cargoes to key Asian buyers such as Vietnam, Bangladesh and Pakistan.
“Indian supplies are uncompetitive due to higher prices. Buyers are giving preference to Brazil and U.S.,” Arun Sekhsaria, managing director of exporter D.D. Cotton told Reuters.
Indian cotton is being offered around 77 cents per lb, cost and freight-basis, to buyers in Bangladesh and Vietnam for November to December shipments, versus around 70 cents for those from the United Sates and Brazil, dealers said on the sidelines of a conference.
Traders usually seal contracts to export around 800,000 bales before the start of the season on Oct. 1, but this year they managed to sell around 300,000 bales for shipments, said a Mumbai-based dealer with a global trading firm.
“Bangladesh, Vietnam and few other Asian buyers bought Indian cotton around 77 cents, but now even they are switched to Brazil and the United States,” he said.
India has raised minimum raw cotton buying price by 38% in two years to 5,550 Indian rupees per 100 kg, even as global were corrected to the lowest level in 3-1/2 years.
The government is trying to keep prices firm artificially, said an Aurangabad based cotton dealer with a global trading firm.
A bumper cotton crop in the new season could dampen prices and make exports viable, unless the Cotton Corporation of India (CCI) buys large quantity from farmers, he said.
India’s cotton production in the 2019/20 season is likely to jump as much as 20% from a year ago to 37.5 million bales, the highest in five years, due to a bigger cultivated area and a boost to yields from above-average monsoon rains.
The state-run cotton buyer could purchase as much as 10 million bales from farmers in the 2019/20 season to support prices, the head of the CCI said. That would be nearly 10 times CCI’s cotton purchases in the 2018/19 season, which ends on Sept. 30.
CCI buys cotton from farmers whenever prices fall below the minimum buying price set by the government.
The trade war between the United States and China has depressed global prices but this could also force Beijing to buy cotton from India, said P. Alli Rani, chairman of the CCI.
“China’s stocks have depleted. India exports could gain momentum if China starts buying,” Rani said.
Reporting by Rajendra Jadhav, editing by Louise Heavens