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Market Monitor | February 2015

Cotton price decline continues

Cotton prices continue to decline in various parts of India, while the farmers are unhappy with the price ranging from Rs. 2,800 to Rs.3,200 per quintal. In 2013-14, the cotton fetched good price at Rs.5,500 to Rs.6,000 per quintal. Many farmers feel that unprecedented loss is incurred by them since the cotton cultivation cost has gone up.

Transaction Tax off on cotton
Meanwhile, the Indian Government has added raw cotton to a list of 37 commodities exempted from commodity transaction tax, giving new hopes to commodity exchanges and a section of brokers that the Centre might favourably consider a regulatory recommendation to reduce the levy, if not withdraw it altogether, in the Union Budget.

The Cotton Corporation of India could procure cotton directly from farmers to offset the price decline. Though cotton production in the southern parts of the country has gone up by 60 per cent over last year, the prices are disappointing. The average expenditure incurred on cultivation per acre is between Rs.10,000 and Rs.15,000, say the farmers.

At the same time, a report from the US says that the US farmers will cut the amount of cotton they plant to a six-year low in 2015, according to a survey of analysts, traders, and farmers, as prices languish below production costs for many and worries continue to mount over demand next year. Cotton farmers will plant 9.8 million acres this year in the United States, down 11 percent from last year, which would be the lowest level since 2009, according to US Department of Agriculture (USDA) data.

Benchmark cotton futures trading on ICE Futures US slumped nearly 30 percent in 2014. The drop - to prices below many farmers' production costs - is expected to deter growers from planting in regions where they have other options, if prices of soybeans, corn, and cotton stay near current levels. Corn and soybean prices also fell last year, but farmers in key producing regions including the Southeast will switch acres, according to sources. Soybean in particular is expected to be a more profitable alternative to cotton and corn. In Texas, the country's biggest producing state, growers have fewer options and may have to stick to cotton, which is resilient to dry weather.

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