Cotton Planting in India Seen Dropping on Water Shortage

Cotton planting in India, the world’s largest grower after China, may drop for a second year after the weakest monsoon rains in three years deepened a water shortage in the main growing regions. Futures in Mumbai climbed.

The acreage may fall 6.5 percent to 11 million hectares (27.2 million acres) in the 2013-2014 season, planting of which began this month, according to the median of estimates from five exporters, analysts and industry groups compiled by Bloomberg. Sowing fell to 11.77 million hectares in 2012-2013 from 12.18 million hectares a year earlier with the harvest dropping 7 percent to 33 million bales of 170 kilograms (375 pounds), data from the nation’s Cotton Advisory Board showed.

A smaller crop may reduce exports for a second year, boosting prices in New York and increasing costs for companies such as Levi Strauss & Co. and Gap Inc. Global production will drop 9.8 percent in the year starting Aug. 1 as farmers from the U.S. to India cut planting, the International Cotton Advisory Committee said on April 2. Cotton has rallied 15 percent this year and is the second-best performer on Standard & Poor’s GSCI gauge of 24 commodities.

“Prolonged drought conditions will tighten the supply of cotton available for exports,” Terry Townsend, executive director of the ICAC, said in an e-mailed interview. “Impact on yield will be determined by the extent of the drought.”

India’s exports will probably slump 38 percent to 8 million bales in the year that began on Oct. 1 from a record 12.96 million bales a year earlier, board data showed. More than 50 percent of shipments were to China, the biggest importer.

Water Shortage

The May-delivery contract advanced as much as 0.4 percent to 87.14 cents a pound on ICE Futures U.S. in New York and was at 86.83 cents at 10:49 a.m. in Mumbai. Futures plunged 60 percent from a record in 2011 as farmers expanded output. The April-delivery contract rose as much 0.6 percent to 18,990 rupees ($347) per bale on the Multi Commodity Exchange of India Ltd., the first gain in three days.

The monsoon, which brings more than 70 percent of India’s rain, was 8 percent below average last year, according to the India Meteorological Department. That’s reduced water available to irrigate crops in Maharashtra, Gujarat and Karnataka states, which cut output by 7 percent in 2012-2013.

“In the main growing belt of Saurashtra, yields may drop because of less water,” said Hasmukhbhai Raval, chairman of the Gujarat State Co-operative Cotton Federation Ltd.. The area in the western state of Gujarat, the biggest producer, may drop by 5 percent to 7 percent in 2013-2014, he said.

Shifting Crops

Some farmers may shift to guar as it fetches better returns, Raval said. Guar gum, a thickening agent used for oil and gas extraction and also in food and drugs, beat rice and cotton to become India’s top farm export in the April-June period amid demand from the U.S., the Times of India reported on March 10. In Karnataka, some cotton areas may be diverted to corn, said Shirish Shah, partner at Bhaidas Cursondas & Co, a Mumbai-based exporter.

“Farmers will keep in mind the drought-like conditions in the main growing states, and will see if the rains are timely,” said A. Ramani, secretary of the Indian Cotton Federation, which represents 350 spinners, ginners and traders. “Indian mills will consume more and we will have a small exportable surplus.”

Raw cotton exports from India will be unchanged in 2013-2014, while yarn exports will increase on rising demand from China, Tracey Allen, an analyst with Rabobank Group, said in an e-mailed interview. “Domestic consumption is expected to increase 5 percent on year to 22 million bales, mainly driven by the growing demand for Indian cotton yarn,” she said.

Monsoon Onset

Planting begins this month in Punjab and Haryana, regions with irrigation, while sowing in the rest of the country will begin with the onset of the next monsoon rains in June.

India’s monsoon rains may be normal this year as it is an El Nino-neutral year, Jatin Singh, chief executive of Skymet Weather Services Pvt., said on March 13. The chances of a drought are only 4 percent, said Singh, who correctly predicted a drought in 2009.

A rally in prices in India may still spur farmers to stick with cotton, said Dhiren Sheth, chairman of the Cotton Association of India. Futures have rallied for six straight months through March, advancing 20 percent, on the Multi Commodity Exchange of India Ltd. in Mumbai.

“Cotton doesn’t require much water, so the crop should be fine even if there is less water,” Sheth said. “Planting may be similar to last season’s because prices have been good.”

(Updates prices in sixth paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE