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- 07 Jun 2022
- ICICIdirect Research
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Increased cotton acreage to ease supply constraints, lower cotton prices
News: As per media reports, cotton planting in India, the world's biggest producer of the fibre, could jump 15% in 2022 to an all-time high, as strong prices prompt farmers to switch away from other crops
Views: Indian cotton prices have more than doubled over the past year as heavy rainfall during harvesting reduced 2021's crop to the lowest level in a decade. Pulses have given farmers relatively poor returns over the past few years. This could encourage growers to shift towards cotton. As per estimates of different industry associations, a 15% rise in India's cotton crop area would lift it to around 13.8 million hectares in 2022 from 12 million hectares last year. Higher output could help cool the rally in global and local cotton prices, which is hurting Indian and Asian apparel makers profitability. With increased cotton acreage the supply of cotton would improve and could result in lowering of prices from all time high levels. Companies in cotton value chain would benefit with continued supply of cotton at lower prices, which would probably enable them to improve their utilisation levels and improve their profitability which was under stress due to supply crunch and all time high cotton prices
Impact: Positive