Bonds, Currencies & Commodities
Cotton farmers, traders hoarding stocks in the hope of higher prices

Prices of cotton that are at record highs are expected to stay firm in the near future due to a global shortage

Cotton prices, which have touched record highs recently, are expected to stay firm as farmers and traders hold on to supplies in local markets, in anticipation of higher prices in the international markets.

"On anticipation of high prices due to a deficit of the commodity, farmers and traders prefer to hold stocks. This has led to slow arrivals in the market when demand in the domestic and international markets is very high. If this situation continues, the prices will not come down easily," said a senior official of the Maharashtra State Co-operative Cotton Growers Marketing Federation.
 
Like other commodities such as copper and rubber, the prices of cotton have surged to historical levels, as production has been lower in leading cotton-producing countries like Egypt, Pakistan, China, Bangladesh and Australia. On 11th February the March cotton contract on the benchmark Inter Continental Exchange (ICE) rose to $1.9455 a pound, a historical high on the ICE. In the domestic market, prices of cotton have more than doubled in the past year to Rs60,000 a candy (356 kg).

"Cotton demand has been high across the globe. But carryover stocks in the international markets are somewhere around 8.8 million metric tonnes. The three years' carryover figures were about 11.5 to 12 million metric tonnes, which means that the international cotton market is facing an acute shortage of the commodity and this has led to a rise in prices," Subash Grover, chairman and managing director of the Cotton Corporation of India (CCI), told Moneylife. "I think, the next year carryover stocks would be about 9.6 million metric tonnes." CCI is a government undertaking with 300 cotton procurement centres across the country.

Taking a cue from the soaring prices in the international markets, cotton growers are holding their stocks on anticipation of higher prices. After having recovered their production costs-as prices have doubled in just a year-farmers can afford to sit on stocks, while traders also pile up inventories aiming to get higher values. The total arrivals of cotton inched up by 5.4% to 24.4 million bales till the middle of this month.

The Ministry of Agriculture, in a recent estimate, said cotton production in the country in 2010-11 (June to July crop year) would be 33.9 million bales, which is an almost 40% increase from 24.2 million bales in the previous year. The Cotton Advisory Board also has raised its estimates for the crop year to 32.9 million bales from 32.5 million bales.

However, it is estimated that domestic consumption will increase by 10% to 27.5 million bales in the period September 2010-October 2011 from 25 million bales in the previous year.
 
But reduced supplies in the international markets after floods in China, Pakistan, Bangladesh and Australia has fuelled the price rise in the domestic markets also. Cotton prices have surged nearly 30% in just two months in the domestic markets. Prices in January which were at around Rs42,000 per candy have touched Rs51,000 in February. This compares with Rs27,000-Rs28,000 a candy a year ago.

"International prices are obviously influencing domestic prices, and at the same time the demand from end-producers of yarn and cloth is robust," Mr Grover said.

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Onion farmers end 10-day old strike; expect govt to lift export ban

With onion prices having dropped considerably over the past few days, onion growers have been holding back stocks hoping for a better price through exports

Onion growers from Nashik in western Maharashtra, one of the principal onion-growing areas, have called off their 10-day strike in anticipation that the central government will lift the ban on export of the onions soon.

The onion farmers from the region were on strike at the Lasalgaon onion market, Asia's biggest onion market over the past 10 days to demand that the ban on export of onions be lifted. The export brings better returns for farmers than what they earn from selling their produce at the Agriculture Produce Market Committee (APMC) market where wholesale prices have dropped recently.

The Press Trust of India has reported that onion growers from the Nashik region are holding their stocks in anticipation that the government will lift the export ban and they will be able to earn handsome returns. Over the past fortnight, the prices of onions crashed to Rs4-10 per kg in the wholesale market.

"Farmers are hoping that the government will lift the export ban on onions, which will get them fair prices, hence the strike was called off. They are also holding their produce as they are anticipating exports will open up," said RP Gupta, director of National Horticulture Research Development Foundation (NHRDF), which monitors onion prices.

A trader at the Lasalgaon market told Moneylife over the telephone, "The situation and supply of onions was tight due to the strike, which has now been called off."

The government banned shipment of onions abroad in December last year to rein in domestic prices that had soared to Rs70-85 a kg in the retail market. Maharashtra chief minister Prithviraj Chavan and union agriculture minister Sharad Pawar have urged the Centre to lift the export ban completely.

"The government is giving its attention at the highest level, to what has been said by the Maharashtra chief minister and union agriculture minister," commerce and industry minister Anand Sharma had said in Delhi last week.

According to Mr Gupta, "The wholesale prices of the onions at Lasalgaon APMC market today was at about Rs417 per quintal (minimum) and Rs1,114 per quintal (maximum). The model onion prices were around Rs1,000 per quintal." (Nearly 80% of the onion produce is rated in the 'model onion' category.) "Around 8,320 quintals reached the market today by 1.30pm, as compared to 14,000-15,000 quintals that generally arrives at the market daily," he said.

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Copper prices turn red hot on supply deficit, weak dollar

Aluminium also edges higher, signalling better-than-expected recovery in the US, Europe and continuing Chinese demand

Prices of base metals, mainly copper, are likely to continue to climb on rising demand, which is seen as an indication of a recovery in the US and European economies, and a weak dollar.

Copper prices are surging towards the $10,000 mark, after touching $9,840 a tonne on the London Metal Exchange (LME) on Tuesday, and analysts suggest that the rally could take prices over the $11,000 a tonne level if the greenback stays weak, robust demand continues from China and manufacturing activity improves in the US.

At its meeting recently, the US Federal Reserve decided to keep interest rates at near-zero levels as the pace of economic recovery in the US has been slow and any attempt to tinker with credit growth, or curb liquidity, could hurt revival in the world's largest economy.

"The conditions are in favour of base metals, particularly copper," an analyst at a Mumbai-based brokerage said. "There is big demand for the red metal, whereas there is a supply deficit. The Fed's recent decision not to change interest rates is also weakening the dollar and this has aided the upside. Sentiment has also improved after the US and China posted a growth in their manufacturing index. We should not be surprised if copper touches the $11,000 a tonne level."

Manufacturing activity in the US and China-both major base metal consuming economies-has been inching northwards. According to the Institute for Supply Management (ISM), index of manufacturing activity in the US rose to 60.8 in January, from 58.5. China's PMI (Purchasing Managers' Index) has also remained strong in the last month.

The HSBC China Manufacturing PMI edged up to 54.5 in January, from 54.4 in December, while the official China Federation of Logistics and Purchasing (CFLP) says its PMI dropped to 52.9 in January, from 53.9 in the previous month. The Market PMI for the eurozone rose to 57.3 in January from 57.1 in December. Any value above 50 for the PMI reflects expansion in the manufacturing sector.
 
China, which consumes about 40% of global copper that is produced, is expected to grow by 9.3% this year.

The Fed's decision not to change interest rates has weakened the dollar further and this has also contributed to base metal prices going up. Today, the dollar index was down to 76.95, its lowest level since November.

A growing deficit of copper has also fuelled prices in the international market. JP Morgan Securities has estimated that the copper deficit would be between 500,000 tonnes and 600,000 tonnes.

In the case of aluminium, while supply is not expected to outpace demand, the price is expected to follow the copper trend on account of the weak dollar and high crude oil prices. Since the Fed announced its rate policy on 26th January, the price of aluminium has surged on the LME. Yesterday, the price of the white metal hit $ 2,530 a tonne, the highest since September 2008.

"Its common (to see) aluminium and zinc follow copper. Although this year supply would be more than demand, the prices of aluminium will also increase, but not as much as copper. A weak dollar and high crude oil prices would help aluminium to maintain its price momentum," the analyst said.

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