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Shift from pulses boosts India's cotton output prospects

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India's cotton production will recover more than had been expected, with relatively high prices of the fibre boosting its appeal to growers – but the impact will be felt in terms of reduced import ideas than a boost to exports.

The US Department of Agriculture's New Delhi bureau raised to a three-year high of 29.0m bales its forecast for 2017-18 cotton output in India, the top producer of the fibre.

The upgrade took the figure 1.0m bales above the USDA's official forecast, and a little ahead too of a 6.29m-tonne (28.9m-bale) estimate from Cotlook, which the group restated on Friday.

The bureau said its revised estimate followed farmer interviews which revealed a "strong preference" for growing cotton, given higher profitability prospects compared with alternative crops such as pulses.

Cotton vs chickpeas

Although India's government has raised the minimum support prices for oilseeds by 6% and pulses by 8%, ahead of the improvement of 4% for cotton, farmers are "still likely to receive higher returns" from the fibre, and expected to raise sowings, the bureau said.

Farmers' preference for cotton also follows a bad experience from 2016-17, when government efforts to boost pulse and oilseeds output through raised minimum support prices turned sour.

"The market was unable to absorb the production which led to a fall in prices below the minimum support price along with reports of limited government procurement.

"This year, farmers across various states have shifted area from pulses, soybeans, and groundnuts to cotton."

As an extra support to Indian cotton output prospects, the country has enjoyed an improved monsoon.

"With the timely onset of the monsoon and prospects for normal rainfall, yields are expected to be higher in most of the cotton growing states."

'More expensive, less competitive'

However, the raised output will not be reflected in increased export prospects for India, which vies with Australia for second rank in world shipments, behind the US.

A 5% rise in the rupee against the dollar since January has made India's cotton "more expensive and less competitive in the international market", the bureau said, noting that exports of cotton yarn had already "slowed down considerably".

Shipments may also suffer temporary hiccups from the introduction at the start of this month of a new goods and services tax regime.

"There may be some execution delays that create short-term disruptions for exports in 2017-18."

Import slowdown

Instead, the bureau forecast the extra supplies being evident in reduced import needs, as the boost to output, from an estimated 27.0m bales in 2016-17, weighs on prices and prompts Indian mills to focus more on domestic supplies.

The bureau forecast Indian cotton imports next season at 1.50m bales, 250,000 bales below the USDA's official estimate.

"Still, there are a number of mills that will continue to import specific cotton grades for their export commitments."

This season, mills have been importing in particular "Australian and American cotton due to price parity while getting minimal contamination, higher yarn realisation, and better quality product compared to the domestic crop".

By Mike Verdin

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