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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed

05 April 2012

USDA GAIN: India Cotton and Products Annual 2012USDA GAIN: India Cotton and Products Annual 2012

India’s 2012/13 cotton production is forecast at 32.3 million 170 kg bales (25.2 million 480 lb bales), down two million bales.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Background Concerning This Report

The discussion of the cotton situation in this report is based on the following production, supply and demand tables. These tables reflect a revision to the 2009/10 production estimate from 30.5 million 170 kg bales to 29.5 million bales, the current Cotton Advisory Board estimate. This revision has been in place for some time, but was not adopted by USDA Washington analysts. Due to limitations in the GAIN reporting system, we are unable to reflect four years of revised data in a single report. In addition, the GAIN data system was not operational at the time this report was due for submission to USDA Washington. The text of this report will refer to the following tables.

Cotton Production

India’s marketing year (MY) 2012/13 (August/July) cotton production is forecast to decrease by two million bales to 32.3 million 170 kg bales (25.2 million 480 lb bales, 5.5 mmt) as area drops to 10.9 million hectares. Gauging farmer planting intentions at this early stage is difficult. However, several factors suggest that 2012/13 cotton area will be lower than the record 12.2 million hectares that were planted in 2011/12.

  • The record area planted in 2011 was influenced by the exceptionally high market prices that many farmers received following the harvest of their 2010/11 crop. While current prices are much lower than a year ago, prices are still above support price levels, which suggests that prices may be high enough to generate interest in cotton planting, but low enough to prompt some shift to alternate crops. While the 2011/12 ending stocks-to-use ratio is forecast to drop to one of the lowest levels in at least 20 years, the current ban on exports and lower international prices are expected to depress the market signals that might have led to larger planting.

  • If the Government of India increases the minimum support price for cotton significantly (effectively a price floor at which the government-run Cotton Corporation of India would begin procurement operations), planting intentions could shift. It is not clear when the support price will be announced, but the price is often established after farmers have planted their cotton crop.

  • Farmers currently have a number of alternate planting options. High prices for peanuts, soybeans, guar and maize (corn) could prompt farmers to shift away from cotton in central, western and northern India. Farmers may also see the higher prices for alternate crops as an opportunity to plant something other than cotton in an effort to improve soil conditions and hedge their risk.

  • After three years of disruptive export policies designed to manage domestic cotton supplies and discount Indian cotton prices relative to international prices, farmers may decide to try crops that are subject to fewer policy-driven market disruptions.

While yields have increased from an estimated 300 kg per hectare to 500 kg hectare since the introduction of biotech cotton, there is some concern within the industry that yields have stagnated over the past few years. The increasing prevalence of “sucking insects” such as whitefly, the need for better micronutrient and fertilizer management, the spread of cotton into dry-land areas and seed quality are all cited as factors affecting yields. Given these ongoing challenges, yields are forecast at the five-year average of 500 kg per hectare. India’s cotton yields continue to be significantly lower than the global average of 740 kg per hectare. The advent of biotech cotton has helped to improve the predictability and stability of cotton as a crop which has supported the expansion of cotton area in recent years. However, there is increasingly widespread opinion within the cotton industry that India’s cotton area will stabilize, at least until there is another significant price or technology shift, within a range of 10-12 million hectares.

The FAS Mumbai estimate of MY 2011/12 production, which differs slightly from the estimate adopted by USDA Washington analysts, is unchanged at 34.25 million 170 kg bales (26.75 million bales, 5.8 mmt). India’s Cotton Advisory Board (CAB) is currently estimating the crop at 34.5 million 170 kg bales and the Ministry of Textiles recently estimated the crop at 34.0 million 170 kg bales. The pace of cotton arrivals continues to lag the year-ago pace. As of March 25, arrivals had reached 25 million 170 kg bales compared to 27.5 million a year ago, which leaves an estimated 9.2 million bales with farmers. FAS Mumbai has reported throughout the marketing year on the reasons for the delay and our previous reports can be found at under “read attaché reports.” Weak mill demand, a late harvest, improved farmer incomes and storage capabilities, and weak prices have all contributed to slow arrivals. India’s recent March 5 decision to ban exports did little to increase the pace of arrivals. March arrivals were affected when ginners in the two largest producing states of Gujarat and Maharashtra opted to strike for a few days as a form of protest against the export ban. Arrivals in Gujarat and Maharashtra continue to lag significantly behind the year-ago arrival pace.

The quality of the cotton crop may also be affecting the pace of arrivals. There is widespread recognition that micronaire values are in the 3.0 to 3.2 range which is lower than the 3.5 plus values preferred by Indian spinning mills. The lower quality cotton could be slowing the marketing of cotton by farmers seeking to blend higher quality cotton with lower quality cotton in an effort to maximize returns. Farmers may also be disappointed with current price offers for lower quality cotton and are waiting for hoped-for higher year-end prices or further clarity surrounding the export ban. It is possible that there will be unusually large supplies of old crop cotton on farms when the new local marketing year begins in October 2012.

The CAB recently increased its estimate of loose cotton to 2.6 million 170 kg bales (440,000 mt) based on a survey conducted by Ahmedabad Textile Industry Research Association. The previous loose cotton estimate of 1.2 million 170 kg bales had been in place since 2004/05 following a similar survey. The new estimate was incorporated in the 2010/11 and 2011/12 CAB production estimates and will likely be in place until a new survey is conducted at some point in the future.

General Production Outlook: Cotton, a predominantly monsoon-season or kharif crop, is planted from the end of April through September, and harvested in the fall and winter. With the area under Bt cotton and improved varieties now reaching an estimated 92 percent of total area, prospects for future growth in productivity are limited as most cotton is grown under rain-fed conditions and on small farms. There are an estimated 5.5 million cotton farmers with the average farm size of 1.5 hectares which limits their ability to adopt capital intensive production technologies and infrastructure. While some potential exists for a further increase in yields, cotton farmers will have to make significant investments in production technologies for improved management of irrigation, fertilizers, micro nutrients, pests and diseases to boost yields above current levels. While there may be limited opportunities for India to expand the area for cotton production beyond current levels, the increase in production will principally come from higher yields.

India accounts for about a third of global cotton area. Within India, two-thirds of cotton is produced in the central cotton growing zone in the states of Maharashtra, Madhya Pradesh, Gujarat and Odisha where much of the crop is rain fed. The northern zone, which consists of the states of Punjab, Haryana and Rajasthan, produces cotton under irrigated conditions and accounts for about 15 percent of production. In the south, the states of Andhra Pradesh, Karnataka and Tamil Nadu account for 20 percent of production. The Central and Southern zones typically grow long duration cotton that allows farmers to reap multiple pickings or harvests. While the number of pickings has declined as traditional varieties have been replaces by biotech hybrids, farmers can still extract up to five pickings per plant depending on weather conditions. In contrast, the irrigated cotton in the northern zone is mostly a short duration crop that fits into a cotton-wheat cropping system.

Bt Cotton: Since its introduction in 2002, Bt cotton has been a major success story. Bt cotton now accounts for an estimated 92 percent of total cotton area and over 95 percent of India’s cotton production. The Government of India has approved six biotech events and more than 300 hybrids for cultivation in different agro-climatic zones. In addition to the approved varieties, there are an estimated 40-50 Bt cotton hybrids that are developed and multiplied informally outside of regulated marketing channels and sold at cheaper rates relative to approved hybrids. One of the results of the adoption of Bt cotton has been a significant shift in the varietal profile and share of different types of cotton being produced in India. Most of the Bt hybrids are of medium and long staple cotton (26 to 32 mm), which is resulting in declining production of short staple (below 22 mm) and extra long staple (35 mm and above). If the current trend continues, the domestic textile industry may seek to increasingly augment their extra long staple and short staple cotton requirements through imports.

Cotton Consumption

MY 2012/13 cotton consumption is expected to increase to 26 million 170 kg bales (18.7 million 480 lb bales, 4.1 mmt). The spinning industry is still in the process of recovering from the losses incurred during 2010/11 when India’s cotton export restrictions kept Indian yarn prices below international prices and encouraged record cotton consumption followed by a drop in cotton prices that saddled mills with expensive stocks of yarn and cotton. The losses incurred during that period continue to affect mill operations.

Despite the current difficulties faced by the industry, there is growing optimism that mills are starting to recover or at least improve their balance sheets. Mills are expected to be in a better position to purchase larger volumes of cotton and increase their yarn production. However, consumption levels will ultimately depend on spinning margins. The Indian cotton supply situation is expected to be relatively tight with the 2011/12 stocks-to-use ratio dropping to one of the lowest levels in at least 20 years. If domestic cotton prices rise without a commensurate increase in yarn prices, consumption could be affected. For now, yarn prices have firmed which is helping to improve spinning margins given relatively low and stable cotton prices. On a macro level, India’s economy continues to expand at a rate of seven to eight percent annually which bodes well for domestic demand for textiles. The Indian rupee has depreciated by 10-15 percent over the past six months which should help support yarn exports.

MY 2011/12 consumption is estimated at 25.3 million 170 kg bales (18.2 million 480 lb bales, 4.0 mmt). Average monthly consumption is expected to improve slightly to 1.95 million 170 kg bales per month during the February to July period as mills benefit from ready supplies as a result of the current ban on exports. Nevertheless, a number of factors are hampering the spinning industry. Skittish lenders continue to be reluctant to provide operating capital to spinning mills following the losses many mills incurred during 2010/11 due to volatile market conditions. As a result, much of the industry continues to limit cotton purchases to nearby needs and few spinning units have purchased large multi-month stocks of cotton. The spinning industry in Tamil Nadu, which consumes an estimated 40 percent of India’s cotton, is expected to face significant power shortages from March through May. Mills have recently had their mandatory power cuts increased from one to two days per week in addition to facing periodic outages. The power cuts are also affecting the spinning sector in Andhra Pradesh. While some spinning units have the option of securing power from private energy providers, alternate power sources are more expensive and will add to operating costs. Power supplies are expected to improve in June when monsoon winds increase the supply of power from Tamil Nadu’s large wind energy sector. Mills are also grappling with higher labor costs as job and educational opportunities in and around textile areas improve and laborers pursue alternate employment. Spinning units are recruiting labor from as far away as Bihar and Uttar Pradesh in northern India and wages have increased by as much as 50 percent in some units in an effort to attract workers. Lower cost polyester yarn and filament coupled with the greater use of polyester in textile products is also affecting cotton consumption. While it appears that lower cotton prices and higher yarn prices will help to increase cotton consumption nationwide, fiscal liquidity issues continue to affect much of the industry and consumption in Tamil Nadu could be constrained by as much as 10 percent over the next few months given the power situation.

Cotton Prices: Cotton prices are currently trading at 80 cents per pound ex-gin for medium staple varieties. The ban on cotton exports has had little effect on market prices and most varieties are trading at levels that are close to pre-ban levels. Aided by the weaker rupee over the past six months, Indian cotton prices often trade at a slight discount to international markets, but tend to follow the general direction of international prices. See Table 5 for more price information.

Cotton Trade

Following the dramatic increase in cotton production after the introduction of Bt seeds, India has emerged as one of the world’s leading cotton exporters. Higher exportable supplies have intensified the divergent interests of the farm and textile sectors as farmers support exports and higher prices while the textile industry seeks to ensure a ready supply of competitively priced cotton. Growing concerns in the textile industry over rising cotton exports have caused the government to initiate various cotton export control measures over the past three years including the abrupt March 5, 2012 ban on cotton exports.

It is not clear if the current ban will be lifted prior to the start of the 2012/13 marketing year or if the Government of India will develop a new procedure for regulating exports. This report forecasts the expected exportable supply of cotton for 2012/13 at 6.0 million 170 kg bales (4.7 million 480 lb bales, 1.0 mmt) given lower production and stronger forecast consumption. The stocks-to-use ratio for 2011/12 and 2012/13 is expected to be relatively low, suggesting that exportable supplies will be limited. In addition, demand from China, the major buyer of Indian cotton in 2011/12, could be reduced after large 2011/12 purchases to rebuild stocks. Imports in MY 2012/13 are forecast at 500,000 170 kg bales (400,000 480 lb bales, 85,000 mt), mostly of ELS and long staple specialty cottons for high-end cotton textile products for exports and domestic niche markets.

Cotton exports in MY 2011/12 are estimated at 11.75 million 170 kg bales (9.2 million 480 lb bales, 2.0 mmt). While the Government of India announced a cotton ban on March 5, 2012, the government is currently reviewing export registration certificates and “let export orders” (cotton that had effectively been exported at the time the ban was announced) to determine how much additional cotton can be exported. No new additional export registrations are being approved and this report assumes that existing policy parameters will be in place through September 30, 2012, the end of the Indian cotton marketing year. The export estimate of 11.75 million bales is comprised of the following:

  • Official data for exports during August and September of 2011 are not yet available, but are currently estimated at 750,000 170 kg bales, higher than the 500,000 bales previously estimated. Preliminary trade data for these two months suggest that exports could have been significantly higher (1.3 million 170 kg bales). However, these data are not always accurate and could be revised significantly. The estimate for these two months will be adjusted once the final official data are available.

  • The Government of India has stated that exports from October 1, 2011 through March 4, 2012 were 9.5 million 170 kg bales.

  • The Government of India has stated that it will allow cotton that was covered by a “let export order” at the time the ban was announced to be exported. This cotton had effectively left the Indian customs territory and is estimated at 500,000 170 kg bales.

  • The Government of India has indicated that an additional 3.0 million 170 kg bales were registered for export at the time the ban was announced. Exporters were required to submit their registration certificates for validation by March 22, 2012. It is not clear how much of this cotton will eventually be exported. However, a long review process will likely leads to lower additional exports as foreign buyers cancel contracts. At this stage, it is estimated that 1.0 million bales of the 3.0 million currently registered for export will eventually be shipped.

While the informal group of ministers from the ministries of commerce, agriculture and textiles were expected to meet by March 23, 2012, to assess the cotton situation, it does not appear that the meeting has taken place. It is not clear when the government will announce the results of its latest assessment of the cotton situation. For more background on India’s latest export ban, please visit and follow the search engine under “Read Attache Reports.”

MY 2011/12 cotton imports are estimated higher at 800,000 170 kg bales (625,000 480 lb bales, 135,000 mt) reflecting additional imports from Pakistan by mills in northern India. Cotton from Pakistan is trading at a discount to Indian cotton.

Cotton exports and imports for MY 2009/10 and 2010/11 have been revised to reflect official data from the Ministry of Commerce.

Cotton Trade Policy

As India has emerged as a cotton exporter in recent years, the Government of India has enacted a variety of trade policies to ensure that competitively-priced adequate supplies are available to the textile industry. India’s national fiber policy affirms that cotton exports should be limited to the exportable surplus. While the shifting export policies have helped to disrupt international and domestic markets and lower farmer prices for cotton, the Government of India is expected to continue to try and ration the volume of exports. It is not clear if the March 5, 2012, export ban will eventually be lifted before the marketing year ends or if there will be new export control measures in 2012/13. However, given projected ending stock levels, it seems likely that the current ban will be in place for much of the current marketing year. [For India’s Cotton Export Policies Since 2010, please download the document]

Cotton Stocks

The MY 2011/12 ending stocks-to-use ratio is expected to drop to one of the lowest levels of at least the past 20 years given strong exports and the current pace of cotton consumption by the textile sector. Stock levels are expected to improve slightly in 2012/13, but will remain relatively tight. While the CAB estimates stock levels, there are no alternate data sources for stocks. USDA stock levels differ from CAB levels because of differing marketing years (USDA August/July vs. CAB October/September). Stocks are held to varying degrees on farm, at gins and at textile mills. Currently, mill stock levels are relatively low (a few weeks to two months of use) given the difficulty mills are facing in securing operating capital from banks. Under less-strained financial conditions, mills could be expected to have three to five months of stocks on hand.

Cotton Production Policy

The GOI establishes minimum support prices (MSP) for cotton at the beginning of every marketing season. The Cotton Corporation of India (CCI), a central government organization, is responsible for price support operations in all states, but is occasionally assisted by state government marketing organizations. Typically, market prices remain well above the MSP, except for the MY 2008/09 when the MSP prices were hiked significantly. Government agencies purchase seed cotton at the MSP, and sell the processed cotton at market prices, and the losses incurred in the operation are borne by the government exchequer. CCI procured a small amount of cotton in Andhra Pradesh, but has not been involved in other procurement operations as market prices have been well above the MSP for much of MY 2011/12. Besides the MSP operations, CCI and state marketing organizations are also involved in purchasing cotton at open market prices for commercial sales. Purchases have been very limited thus far in 2011/12; CCI made limited commercial purchases following the export ban in an effort to support prices.

Various central and state government agencies and research institutions are engaged in cotton varietal development, seed distribution, crop surveillance, integrated pest management, extension and marketing activities. In 1999, the central government launched the Technology Mission on Cotton (TMC) to improve the availability of quality cotton at reasonable prices. The goal of the TMC is to focus on bringing about improvement in the production, productivity and quality of cotton through research, transfer of technology and improvement in the marketing and raw cotton processing sectors.


India is expected to continue as an exporter, but exports will likely continue to be managed unless global cotton prices come down significantly. Most exports are expected to be of medium-to-long staple cotton (25 to 32 mm length) to China, Bangladesh and East Asian countries. However, India will likely continue to import ELS and quality long staple cotton (28-34 mm), with occasional imports of short staple cotton (below 22 mm) when international prices are favorable. The United States has been the leading supplier of cotton to India over the past few years. Indian mills importing U.S. Pima and upland cotton recognize its quality and consistency, and are ready to pay some premium over competing origins. However, U.S. cotton faces competition from neighboring suppliers like Egypt, West Africa, the Commonwealth of Independent States (CIS), and Australia due to their freight advantage and shorter delivery periods.

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