Surging Seed Cotton Prices in Punjab Exploring the Duration of Elevated Rates – Rs. 9,400 and Beyond

“Cotton Price Surge in Punjab: Seed Cotton Prices Cross Rs. 9,400 Amidst Government Interventions, Import Challenges, and Quality Issues”

In recent weeks, cotton prices have been on the rise due to a combination of factors including government interventions in the market, the strengthening dollar impacting imported cotton profitability, and issues related to quality and supply shortages.

In Punjab and Sindh, the prices of seed cotton (known as Phutti) have exceeded Rs. 9,000 per 40 kg, and in Balochistan, they have crossed the threshold of Rs. 10,000. In specific areas like Bahwalnagar, Bahawalpur, Faisalabad, Toba Tek Singh, and Haroonabad, Phutti prices currently range from Rs. 8,600 to Rs. 9,400 per 40 kg. Meanwhile, in Rahim Yar Khan and Chichawatani, prices have peaked at Rs. 9,375 per 40 kg. In Balochistan, particularly around Khuzdar, seed cotton is being traded within the price range of Rs. 9,200 to Rs. 10,000 per 40 kg.

The Karachi Spot Market prices have also surged, reaching Rs. 21,150 as of today after remaining stable at Rs. 20,829 for a few days. This marks a 10 percent increase within this month.

While the trade activity is ensuring better prices for cotton growers, who previously struggled to attain even the support price of Rs. 8,500, some buybacks from the textile sector also indicate potential future export opportunities. Additionally, the threat to the cotton crop in South Punjab due to the Sutlej River flood could further contribute to the rise in prices. The flood has affected over 100,000 acres in Bahwalnagar alone, according to media reports.

The duration of this price rally is a significant question. Factors such as economic concerns, currency devaluation, LC opening challenges, and shortages from fields to ginning are pushing textile mills to procure cotton. Internationally, US Cotton Futures have rebounded by around 14 percent from their low of $79 per pound on June 27th to $87 per pound currently, making domestic buyers turn to local sourcing.

The rise in global cotton prices is partly due to the United States Department of Agriculture (USDA) trimming the global production forecast for 2023-24. This could counterbalance the sluggish rebound from China. As a result, international prices are expected to remain higher by year-end compared to the previous year.

Furthermore, the increase in Crude prices is driving up shipping costs, making imported cotton less appealing for the Textile sector. Traders anticipate seed cotton prices in Punjab to potentially reach Rs. 10,000 per 40 kg if rupee devaluation persists.

Talha Qureshi, Cotton Procurement Manager at Siddique sons Group, expressed that the rise in cotton demand appears temporary due to the USD increase and arrival shortages, leading to panic buying. While some predict the market will eventually settle around Rs. 18,500 to Rs. 19,000, the escalating borrowing costs and anticipated rise in KIBOR could elevate pressure on spinning mills’ production costs. In this scenario, only mills with strong financial standing, minimal operational expenses, and solid exports are likely to endure.