(Bloomberg) -- Cotton output in India, the world’s biggest grower, may increase to a three-year high as some farmers plant more of the fiber on better returns compared to other crops.
Production will probably climb to 37.5 million to 38 million bales in the harvesting season starting Oct. 1, from 34.1 million bales a year earlier if the monsoon is normal in main growing areas, said Nayan Mirani, president of the Cotton Association of India. That would mean the biggest crop since 2014-15, when the harvest was 38.7 million bales, data from the association show. A bale weighs 170 kilograms (375 pounds).
A bigger Indian crop will add to an expected decade-high harvest in the U.S., the top exporter, and a forecast increase in output in Australia just as China continues to unload inventories. That’s prompted global prices to drop 4.4 percent this year after climbing 12 percent in 2016. In India, domestic prices are still offering favorable returns for farmers.
“As long as the monsoon is normal and on time, it’s the right thing for the farmer to be in,” said Mirani, whose family has been trading cotton since 1870. “It’s more a function of what the farmers earned compared with other crops.”
India’s total cotton area may climb 10 percent in 2017-18 from a year earlier, Mirani said. That’s a rebound from the 12 percent decline to 10.26 million hectares in 2016-17, according to farm ministry data.
Benchmark spot cotton prices were 3.7 percent higher on Monday compared with a year earlier, according to the Cotton Association of India. The November and December cotton contracts on the Multi Commodity Exchange of India are trading at a discount to the July contract, indicating production will increase and prices will start falling when harvesting begins in October, said Aurobinda Gayan, vice president for research at trader Kotak Commodity Services Ltd.
Earnings from cotton are better than soybeans, peanuts, chilli and some pulses, which will likely see area planted to the fiber increase 15 percent, according to Kotak’s Gayan.
“The average price of cotton in India was always positive this year and better than last year,” Gayan said by phone from Mumbai. “I am anticipating a shift from other crops.”
This year’s monsoon is set to be normal for a second year and arrived earlier than usual, according to the India Meteorological Department. Showers were 1 percent below normal in the June 1-26 period, it said.
Farmers planted about 2.47 million hectares (6.1 million acres) of cotton as of June 23, up 30 percent from the same time a year ago, according to the farm ministry. The area planted to oilseeds increased 55 percent to 1.12 million hectares, while pulses were sown in 597,000 hectares, down 34 percent a year earlier, the ministry said.