Business is now extremely limited for the cotton industry in the Commonwealth of Independent States (CIS); the gap in prices at which the farmers are selling and the buyers are offering to pay is expansive. Damir Makhmunov of the Balt Cotton Group reports that the usual pricing pattern, in which selling and buying levels were determined by a basis CIS index, when an appropriate discount off this index for the base quality was applicable, is not working at present. “This has essentially halted business. Buyers report they would be willing to buy and pay the usual price basis, consistent with established pricing patterns,” Makhmunov says. However, sellers at origin are quoting at levels that would at least cover their own fiber production costs, despite where the CIS Index is running. “Soon we will either see the overall market advance to levels where sellers meet the new buying levels, or farmers will be pressed hard enough by their financial limitations and banks’ demands to reduce their levels to where the market buying holds, despite losing money,” he continues.
Difficulties in the region are partly because CIS cotton is not competitive in European and Far Eastern markets. Demand in Europe for CIS cotton declined by 15% to 20% compared to last season; many reports suggest a large number of textile mills in Russia are currently not operating. “There is some demand for cotton in Belorussia, but it is still quite limited in volume. No longer are there textile operations in the Baltic States,” Makhmunov adds.
The CIS cotton industry must be strategic to weather this period. Makhmunov says, “Their main objective for survival is to protect their capital base, in order to position themselves properly for the next expansion cycle, which will undoubtedly come in the future.” Recently, though there is still a lack of demand, the market moved higher. This was partly due to government intervention in China, India and the CIS, who supported their local prices by mandating either a minimum price or by absorbing surplus inventory into government reserves. This in turn led to fewer offers and higher prices in these areas.