So Far, So Good for Pakistan’s Cotton Crop
November 30, 2011 To date, the equivalent of about 9.5 million bales of seed cotton have arrived in Pakistan’s ginning factories. Results from the early crop (about 30% of the expected total) have been positive, both in terms of yield and quality. However, both yield and quality for the remainder of the crop looks to be average at best. Some of the early crop was affected by heavy rains and flooding, and now a significant portion of late crop is being damaged by red bug and fungus attacks. Moreover, due to declining cotton prices, growers are leaning toward sacrificing a small portion of the remaining cotton crop by going into the wheat crop early. Production costs of raw cotton in Pakistan are as follows:
- About 30% growers own their lands, so they don’t have to add lease/rent in their production cost, which is about 50 to 55 U.S. cents per lb.
- About 70% growers do not own their cultivating lands, so they have to add lease/rent in their production which is about 68 to 72 cents/lb.
- Approximate yield of seed cotton is about 1000 kg per acre.
In light of these developments, our crop estimation is being revised downward from the earlier prediction of 13.5 million to 14 million bales to 13 to 13.5 million bales (340 lbs each).
In the raw cotton market, the local trend is bearish, with prices in the range of 47 to 76 U.S. cents per pound post-ginning, depending on its quality.
Overall, the financial position for mills is weak after they incurred heavy losses in last few months due to the sudden fall in cotton prices. Banks have also tightened their credit policy for the textile sector this year. As a result, mill consumption likely will remain at about 13.5 million bales in 2011/12.
The local yarn market, meanwhile, is weak due to lackluster demand and slow offtake. However, due to the cheaper supply of Pakistani raw cotton, there is some relief among mills over the improvement of operational profits on turnover, because the current drop in cotton prices has not been entirely matched by an equal drop in yarn prices. Local downstream manufacturers have continued with their hand-to-mouth buying approach and have covered against pressing requirements.
Yarn demand from foreign sources has failed to show much improvement over the last few weeks. Although business has continued at the prevailing prices, spinners are complaining about the lack of volume sales.
Subdued business conditions have prevailed in textile value-added sector and whole chain — weaving, knitting, home textiles and garments — is struggling due to lack of demand, power shortages and poor viability. Moreover, recent devaluation of currencies and handsome rebate incentives on exports of textile products in competing countries like India are new challenges being faced by our textile sector.
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