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Outlook for cotton prices

Outlook for cotton prices

The cotton crop in Punjab is experiencing tough times as a combination of frequent rains and flooding claim its toll on the crop. The farmers fear a loss of at least 15-20pc in overall yield as the traditional tough month of September, which often plays a critical role in determining the crop’s output, still lies ahead.

According to the official figures, the floods, which have largely receded, impacted 67,629 cotton acres. But of late the River Sutlej has started rising and breaking its banks. It may inundate a few thousand more cotton acres in the central Punjab region during the current week. The continual rains in the first three weeks of August have led to huge weed growth, pest pressure and pollination.

The crop, according to its biological cycle, was at the fruit setting stage. According to farmers, the late sown crop, which had higher ratio in the province, is now damaged. A few progressive farmers, who may be 15pc of the lot, might still be able to recover their crop, but the majority is not so resourceful. The effort to recover the crop has to start afresh.

With earlier investment on the damaged crop gone, farmers have to reinvest on both weed and pest control with many under huge financial burden because of loss they suffered in other crops. And they have only 40-50 days to recover from impacts of weeds and pest, apply fresh dose of fertiliser and renew the cycle of fruit setting. This could happen only if there are no more rains and heavy winds to help alleviate pest pressure.

Only progressive and resourceful farmers would be able to manage the required investment. A majority of growers may not be in a position to undertake that kind of financial effort. “Out of 22 acres of cotton, I am concentrating only on 10 acres, which have relatively escaped the full damage and are easy to recover,” says Abad Khan of the Farmers Associates Pakistan.

And if the crop is delayed further, the growers would risk a prolonged delay in sowing of wheat, the only crop, which has left some profits for farmers. The indeterminate nature of the cotton crop gives farmers the option of terminating the crop at their own will, rather than waiting for the production cycle to complete. Thus, a majority of farmers may opt for early sowing of wheat, rather than waiting for final cotton pickings.

Current flooding and highly wet cycle, have impacted the entire acreage (little less than 6m) of the crop to varying degrees. With fears of a lesser yield, the rates of cotton have started recovering a bit; against Rs2,200 per maund a few days ago, they have risen to Rs2,500 per maund.

Though farmers still maintain that they would only break even at the current price and look forward to expecting something beyond Rs3,000 per maund. The industry, however, does not see prices going even near to that figure. It thinks that the current small surge in the price is because of improvement in New York futures, which jumped from 61.5pc per pound to 66.5pc per pound because of internal US factors.

Though rumours of damage to the Pakistani crop have contributed to the price hike, it would soon deflate because of weak industrial consumption. The textile manufacturing is at a low ebb because of rising cost of inputs that has made it non-competitive in the world market.

So, instead of a further increase, the industry sees a ‘correction of current aberration’ in the next few weeks, if not days. The non-recovery of the price means a further cut in production and an earlier termination of the crop. The cumulative sectoral loss may not reflect the scale of the social cost that individual farmers suffer, but it would be ruinous for them at the family level.

Published in Dawn, Economic & Business, August 24th, 2015

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