Indian cotton exports resume; bearish...for now

On March 5 the Indian government announced that it was banning all cotton exports, effective immediately. Shipments of 7.7 million bales in the 2011-12 marketing year had already shot past original export estimates of 6.8 million bales. An additional 2 million bales that were contracted for shipment were not at issue, because exporters would be allowed to honor all commitments. The government felt it needed to ensure that supplies would be available to feed the domestic mill industry.

China, Bangladesh and India’s other customers would have to look elsewhere for new purchases. With the possibility that US stocks would be run down to historically low levels, prices closed up the daily trading limit in the session following the announcement of the ban.

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The bullishness was short lived, though. There was no follow-through to the rally, as the market closed lower the next day. Estimates for global ending stocks have been swelling in recent months. In December, the USDA estimate for the 2011-12 carryout was 51.8% of usage, but the March 9 monthly crop report showed that the figure had climbed up to 57.3%. Production forecasts remained steady, but consumption estimates fell by about 2.5%. So while it was quite likely that US stocks would be run down further if there were substantial interest in old-crop cotton, in the grand scheme there is still plenty of supply available before the new crop is harvested this coming autumn.

In any case, it all became a moot point, because by March 11 the ban was lifted as the government yielded to pressure from China and other concerned parties. The market proceeded to new lows for the move.

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