Commodity Review: hefty cotton stocks keeping pressure off prices

COTTON: The previously buoyed cotton prices have been steadily strengthening in the last two weeks courtesy of rising mill interest. The prices however are still at an attractive level, ranging between Rs 6,185- Rs 6,600/ maund depending on the quality of the lint- which is a vast improvement over the rates that gave millers a scare early on in the season.

According to a PAR report detailing the cotton buying/selling that took place during the last 7 days, most of the trade volume was concentrated within Punjab, with Gul Ahmed, Suraj and Master textile mills making hefty purchases as the week drew to a close. Export intensive millers are currently in the process of stocking up for the next season and the good quality stuff is being rapidly lifted out of the market, our sources reveal.

Overall, the general price trend should remain steady as we go further into the glut season. This statement can be backed by the cotton arrivals report that was issued this week by The Pakistan Cotton Ginner’s Association (PCGA), detailing the total receipts of cotton into ginneries between August and the 1st of December.

According to the report, the total arrivals have touched 11,045,341 bales during this period- from which the domestic mills are said to have lifted 8,729,136 bales already. This means that around 2,316,205 bales are still lying unsold with the ginners in both pressed and loose form- which combined with steady new arrivals should keep the pressure off prices.

Meanwhile on the international front, the fiber slump continues. With all of the world’ leading cotton producing countries- including China, India and the US- expecting bumper crops, cotton prices globally just can’t seem to be getting a break. The futures market has been similarly lackadaisical, with volumes remaining sluggish.

On Friday, Reuters reported that the active March cotton contract on ICE closed down by another 0.2 cent, at 78.85 cents/ lb. The market on the whole has also been down and out since the Chinese state reserve started selling its stock, and even a hopeful US export data was unable to rouse buyer interest.

WHEAT

Wheat supplies and Atta prices have finally started stabilising under the glaring watch of the provincial food departments- especially after a policy of issuing open stock on priority has been adopted. Currently, prices in Punjab are trending between Rs 785-790/ 20 kg bag (additionally, specially subsidised flour @ Rs 765/ is also being sold exclusively at government monitored Bachat Bazaars).

However, this week there were news reports that some millers in Karachi were selling Atta above the rate prescribed by the Sindh government (Rs 790/20 kg bag). Sources report that ex-chakki prices in Karachi are trending in the range of Rs 53-54/kg whereas ordinary milled flour is still being sold around Rs 43/kg, with millers still maintaining that there was a dearth of the commodity in the open market.

RICE

In a somewhat expected development, Pakistani rice has dethroned Vietnamese origin rice and became the cheapest sourcing destination for white rice within the Asian bloc in the space of the last two months. Pakistan 5 percent broken rice ended the month at $380 per ton, up about 1 percent from a month ago and down about 13 percent from a year ago. Currently, India and Vietnam’s benchmark 5 percent is selling at a good premium to other Asian origin rice and both countries have been able to achieve steady growth in sales on account of the better (and steady) quality of their product.

In a separate and equally distressing development, Pakistan’s share of basmati rice market in Europe has also been steadily ebbing. According to data from the European Commission, the share has contracted significantly to about 18 percent in the current marketing year, largely due to higher production costs and poor marketing practices of the Pakistani exporters.

The EC data shows that Pakistan basmati rice accounted for nearly 46.5 percent of EU’s total basmati rice imports of about tons in marketing year 2011; however it declined to about 19.4 percent in the last year. Watch out for a detailed analysis of this development in our regular columns.

SUGAR

While the open market prices for sugar have witnessed a bit of respite after the crushing season began, the turf war between millers and growers is far from over. We have learnt from sources this week that the support price of Rs 180/40 kg, which was set (and announced) by the agri minister last month, was largely rejected by the millers. The government subsequently did not send out a directive after it was beleaguered by the rising ire of the sugar mill lobbyists.

As a result, farmers in Sindh are now being coerced to sell their crop at last year’s MSP and are incurring major losses. At the time of this article’s writing, further information on the matter was hard to come by, since both the Sindh Cane Commissioner and agriculture department spokespeople were unavailable for comment. Watch our regular columns for further details.