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7-Business: Indian cotton - harvest up and prices down



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TITLE:  Not cotton candy
SOURCE: Indian Express, by Raghavendra Kamath
        http://www.indianexpress.com/archive_full_story.php?content_id=76283
DATE:   14 Aug 2005

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Not cotton candy

MUMBAI, AUGUST 14: First the good news: Cotton crop is expected to hit a
record 25 million bales this year. Now the bad news: Due to excess
supply, cotton prices are expected to hit their 10-year lows in October
2005 when the cotton pluckings take place.

Production is expected to be bumper this year, thanks to good weather,
the crop acreage and more usage of genetically modified seeds. In fact,
India produced 23.5 million bales last year.

''Delayed rains at the time of sowing in June in certain areas and recent
floods in parts of western India damaged crops to some extent, but the
overall condition is good,'' said a cotton trader in Mumbai. Monsoon
showers in early August after a dry spell improved crop prospects. If
more rains come at the end of this month, crop yields would get a further
boost, traders said.

''Even if the prices fall, the support price mechanism of the government
will ensure that the prices will be under check. During the excess
production of mustard, the government intervened. Further, the exports
will absorb a major chunk of output and ensure a better price,'' said
Madan Sabnavis, chief economist of NCDEX.

India -- third largest producer in the world behind the US and China -- has
the world's largest area under cotton and this has risen by 5 to 7 per
cent in 2005 from about 9 million hectares in 2004. As the bumper
production is expected to soften prices, farmers are expected to shift
from cotton to other commodities, traders said. What's more, yields are
expected to be better this year with the growing popularity of
genetically modified cotton, which was introduced in the country in 2002.
Overall coverage under the genetically modified cotton has more than
doubled this year from the previous year following the launch of new
varieties and improved supply of hybrid seeds.

More exports could be one solution for the problem of plenty. India's
cotton exports could rise to about 1.5-2 million bales in the marketing
year to September 2006 to countries such as China, Pakistan, Bangladesh
and Indonesia from nearly 1 million this year.

But there are some traders who opine it is too early to predict the
bumper output and subsequent price fall. ''All depends on the 250
varieties of cotton in the country which include medium and long fibre
cotton. There is still ambiguity over the sowing of genetically modified
cotton,'' said an analyst with a commodity trading firm.

''In northern zone, the acreage and output is increased. Even in Gujarat,
acreage of Shankar and BT variety cotton has gone up. But in Maharashtra
and Madhya Pradesh, sowing is on. In southern states it will take some
time to predict the output. In this scenario, the 25 million bales output
may not be the right figure. It may be even 23 or 24,'' said Ajay
Trivedi, a cotton analyst with a Mumbai-based firm.

''It is true that internationally, cotton is in short supply. So the
prices will be under check,'' said a market source. On the other hand,
many cotton mills which have planned expansion won't be able to absorb
the bumper crop as there is a time gap between implementation and
commissioning of plants.




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