Cotton crop estimates may be lowered on heavy loss by rains and floods

S.A.AZIZ SHAH

Cotton Analyst & Consultant

Cotton crop estimates may be lowered on heavy loss by rains and floods

                 

Although, the chain of Monsoon rains has broken and last week there were no significant rains reported from any cotton areas of Punjab or Sindh provinces but the alarming situation in Sindh is that the standing water in the cotton crop which partly consist of rain water and partly from breached water-logged canals may not be cleared from fields before one to two months. The standing water is proving to be deadly for cotton plants as it is becoming acidic and poisonous by dissolving health injurious chemicals and the hope of recovery is dying. The cotton bolls on plants which were above water level have opened while those under water have turned dead. Fruiting on cotton plants starts from bottom to upwards so all bolls under water have gone dead.  Disturbing field reports indicate fear of almost total loss of cotton crop in most of the water-ravaged areas of Sindh province. As such, the estimate of damage to crop would be going up placing the size of cotton crop in Sindh close to 2.5 million bales plus 10.0 million bales of Punjab to make a national crop of 12.5 million bales.  The Pakistan Cotton Ginners’ Association (PCGA) has not as yet issued any crop arrival report which may guide the cotton community in forming a somewhat realistic idea about size of crop. However, concerned quarters estimate total arrival of seed cotton as on 1^st. October-11 between 2.8 and 3.0 million running bales of which Sindh share may be around 1.2 million bales.  Another factor disturbing the cotton trade in general and exporters / spinners in particular is that of quality of cotton in rain-damaged areas. All cotton  is stored or heaped either in the open yards of ginning factories or cotton fields. Generally, all seed-cotton is heaped on open bricked platforms in factory yards which has been severely damaged by rain water, seed-cotton lying stored in covered Kutcha warehouses has also been damaged but less severely and cotton plants have been damaged.  This season, monsoon rains covered extensively most of the South Asian countries but also intensively only Pakistan. When we talk to cotton people of India about heavy damage to Pakistan cotton crop by torrential rains, they say that the rains have greatly benefited their all summer crops including cotton, rice and sugarcane because their crops are on RAM BHAROSA i.e  almost entirely rain dependent but Pakistan completely irrigate their crops with canal water and rains provide extra water which, if heavy, then damages their crops severely. Even rice crop in Bangladesh is reported to be fine. The aspect of quality has amply been manifested in price of seed-cotton and lint cotton alike. Rain damaged cotton is selling at a discount of Rs.1,000-1400 per maund from clear normal cotton. As such, lint cotton traded last week lowest at Rs.Rs. 4,800 per maund  and fine lot at Rs.6,200 per maund of 37.324 Kg ex-gin (ex-gin price between US Cents 66.66 and 86.11 a pound of lint cotton + FOB expenses 6 to 7 cents).  The lint cotton buyers whether spinners or exporters appeared worried about quality of lint cotton as they see damaged cotton being mixed with better quality. It is better not to mix damaged cotton with sound cotton otherwise mixed lots would be discounted heavily..

India is expecting a bumper crop of 36.10 million 170-Kg bales against their last year’s cotton production of 33.4 million bales. As such, India may have exportable surplus of over 8.0 million bales of which about 90% would go to top three cotton importing countries bordering India viz; China, Bangladesh and Pakistan. According to a press report, a large number of spinning – textile mills located in the south of India have lost their edge on local cotton purchases as total transportation cost from ginning factories in Gujrat, Maharashtra what to speak of Haryana and Punjab area to spinning mills in South India is higher than transportation cost to China. Inland trucking charges in India are high while ship freight for China is very low.  The same reports says that India, instead of moving into value addition i.e. increasing exports of cloth and garments, has unfortunately moved in reverse to export of raw cotton. Sanjay K. Jain, the author of this report complained that Indian Government did nothing to save its textile industry from the ill-effects of US recession of late 2007 and early 2008. On the contrary, Indian Government adopted such policies viz: Increase of Minimum Support Price (MSP) by 40 %, introduction of 5% incentives on export of raw cotton, reduction in duty-drawback rates and reduction in removal of interest subvention by 2% which worked against the interests of their domestic spinning industry.     

 China: China achieved all its production and export targets in 2010 being the end of their 11^th five year plan ( 2006-2010) and 2011 is the start of 12^th  5-year plan ( 2011-2015). India and China  have been strictly and regularly planning their 5-year plans and working on it religiously to achieve their goal targets. They have very successfully shaped their economies but Pakistan lost its track after three 5-year plans and is now groping in the dark to find any direction of success. China improved its textile export performance in 2010 to return to pre-crisis level. In 2010, China exported textile and garments worth of US$ 206.5 billions, increase being 75.72 % from 2005. Similarly the profit margins of textile sector improved 1.91 times from 2005 to 5.44% in 2010.  The prominent economic factors which help their economy attain new high targets are mentioned as: competitive advantage of textile industry, sizable growth in domestic demand, industrial upgrading and innovation and textile friendly policies. China has 120 million Ring Spindles, 2.32 million of rotor spinning machines, 1.26 millions of looms and its spinning capacity has reportedly exceeded 50 % of world total spinning capacity. China has 12,000 cotton textile enterprises.  In 2010, China produced 27.17 million tons of yarn and 80 billions of yards of cloth, according to National Bureau of statistics.  China has 12,000 cotton textile enterprises of which about top 100 units share 30 % of the total textile industry and these 100 companies have their own brands which enjoy very good reputation both in domestic and foreign markets.

Bangladesh: Being the second largest cotton importing country after China, Bangladesh imports over 3.8 million 480-lb bales mostly from India, Uzbekistan and US to meet its increasing demand of raw cotton around 4.0 million bales per annum. Total number of mills is over 350 and spindles over 7.6 millions. Domestic cotton production is around 2% of its domestic consumption. Domestic weaving and knitting sector has total requirements of yarn at 940,000 M/tons in 2010-11 including 200,000 tons of imported yarn mostly from India) and fabric consumption is 6.2 billion meters including 2.3 billion meters of imported fabric mostly from China ( 2.4 billion meters or 38.70 % for domestic sector and 3.8 billion meters or 61.30 % for export oriented Ready Made Garment sector).  The annual growth of RMG sector has been very impressive. In 2001-02, total RMG export was at US $ 4.584 billions which increased to US $ 15 billions in 2010-11- the increase is more than 200% in ten years with 10% straight average. Against this, Pakistan’s export of RMG is around US $ 5.5 billions in 2010-11.  We have our own cotton crop equal to more than 80 % of our domestic requirements, we are largely surplus in yarn consumption and also in fabric consumption but RMG exports is only around 36 % of total textile exports whereas RMG exports of Bangladesh is around 80%.             

By thr end of last week, cotton prices decreased heavily on reports of heavy fall in New York futures and commodity prices especially the prices crude oil and gold. Also, off-take of yarn has slowed down beside fall in yarn prices. The alarming financial-cum- economic situation in Europe and US appear to be posing a serious threat to global economy. Beside, US-Pakistan relations have recently deteriorated in the backdrop of attack on Kabul and any action including some sort of attack by Nato forces stationed in Afghanistan on Pakistan’s territory or borders is not ruled out.  Pakistan’s rupee is losing its value against US Dollar and in private trading it has touched the ever highest level of Rs.89 a Dollar. Since Pakistan is import-oriented country whose imports are over 57% more than its exports so devaluation of Pak currency would cost import high and it would very adversely affect our foreign debt position. The impact of the damage to our crops by recent heavy rains and floods, poor economic conditions and deteriorating US-Pak relations may be very serious on our economy as well as on the country.

     

                                             ****************************