India Plans to Sell Cotton to Bangladesh to Trim Record Reserves

(Bloomberg) -- India plans to sell cotton to Bangladesh to trim its bulging reserves following a slump in demand from textile mills in the top grower.

State-owned Cotton Corp. of India may export 1.5 million to 2 million bales of the fiber to the neighboring nation to help reduce India’s record surplus before the new crop begins arriving in October, said Pradeep Kumar Agarwal, chairman of the company. It generally sells cotton to local mills and traders at market prices, after buying from farmers at government-set minimum rates.

Higher sales from India may potentially increase reserves in top exporters like the U.S. and Brazil and further lower global prices that have fallen about 8% this year as the coronavirus erodes demand for clothing. Global cotton consumption is set to drop about 15% from a year earlier to 22.29 million tons in 2019-20, according to the USDA estimates.

Export prices will be decided by the two governments using the Cotlook index, Agarwal said. Industry researcher Cotlook Ltd.’s benchmark is a daily average of the five cheapest cash prices in the world.

“In any case, I can assure that it won’t be lower than domestic prices,” which have fallen about 20% since the outbreak of the coronavirus, he said.

Huge Stockpiles

Cotton Corp. plans to sell 500,000 bales to 700,000 bales of 170 kilograms each to Trading Corp. of Bangladesh in the marketing year ending on Sept. 30. The rest of the quantity will be shipped in 2020-21, Agarwal said in a phone interview. Bangladesh vies with China as the world’s biggest buyer of cotton.

India is likely to have a record closing stockpile of 10.25 million bales by Sept. 30, according to the Cotton Association of India, as domestic consumption may drop more than 20% from a year earlier to 25 million bales in 2019-20, it said.

Cotton Corp. bought 10.5 million bales this year, the highest-ever procurement. It included 2 million bales purchased during a nationwide lockdown to prevent distress selling by local growers, Agarwal said. The company is carrying about 8.4 million bales at present and its ending reserves may not exceed 3 million bales on Sept. 30, he said.

Cotton Corp. spent about 5,500 rupees ($74) per 100 kilograms to purchase cotton from farmers, compared with the market rate of 4,800 rupees to 5,000 rupees, he said. Indian farmers have planted cotton in 12.55 million hectares (31 million acres) as of Aug. 14, compared with 12.16 million hectares a year earlier, according to the farm ministry. The crop will be harvested from October.

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