The state-owned company procured 10.4 million bales of cotton – each bale weighing 170 kilograms – amounting to one-third of India’s cotton production in 2019-20. It has so far liquidated only about 7.4% of it as it resisted distress sale as expected by traders and millers, trade insiders said.
Now, as it stares at yet another bumper procurement operation during next cotton season beginning October 1, CCI has offered a discount of Rs 1,500 per candy for purchase of more than 200,000 bales of cotton. Buyers get a ‘free period’ of 90 days, which means they have to lift at least 50% of the cotton purchased within the first 45 days while they get another 45 days to lift the balance.
“We have sold seven lakh bales of cotton on Tuesday to bulk buyers,” said PK Agarwal, chairman of CCI. This is the highest single-day sale since 2014, when it sold 1.1 million bales.
Between October 2019 to June 2020, CCI could sell only 200,000 bales of cotton as it had refused to sell at a loss, as expected by traders and millers.
Based on the minimum support price (MSP), the cost of cotton procured by CCI is about Rs 45,000 per candy of 356 kg each, while the ruling market price is about Rs 35,000/candy.
Besides its huge procurement in the 2019-20 cotton season, when its agent Maharashtra State Cotton Growers’ Marketing Federation alone procured 1.7 million bales of cotton from farmers, CCI is also carrying 900,000 bales of cotton of the 2018-19 season, which is prices lesser than the new cotton by about Rs 1,000 per candy of 356 kg each.
“We think that the cotton prices cannot decline much from the present level,” said BS Rajpal, partner at Manjeet Cotton that purchased 300,000 bales from CCI on Tuesday. “With the stock being held by the trade and the mills having depleted, we expect some domestic demand for mills and possibilities of some export too. Till the cotton from the next season starts arriving in the market, we think, CCI can sell about 30-35 lakh bales of cotton,” he said.
Spinning mills, which use cotton to make yarn, are operating at capacities ranging between 30% to 70%.
“We think that till November, the mills may require 45-55 lakh bales of cotton,” said Ashwin Chandran, president, South Indian Mills Association (SIMA). “Excluding the stocks that they are holding, they may have to purchase about 15-20 lakh bales of cotton till the beginning of the next harvest season. We have advised mills to watch and buy carefully as estimates of all the agencies point to higher closing stock of cotton in 2019-20,” he said.