By: Afzaal Khadim Khan
1. Price Movements Globally & in Pakistan
- ICE Cotton Futures: Activity remained steady with moderate trading volumes. On 8 September, open interest and contract volumes were slightly higher compared to the previous week, indicating increased market participant interest. (AP News)
- Spot Prices (USDA report): The USDA’s Weekly Cotton Market Review shows spot quotations for standard U.S. cotton (certain quality for color, leaf, staple, etc.) averaging 62.02 cents per pound, up slightly from 61.95¢ last week. However, this is still lower compared to about the same period last year. (ams.usda.gov)
- Pakistan: Cotton markets in Pakistan are under pressure. Floods in Punjab have damaged farmland, creating concerns over crop losses. Food and raw material inflation risk is rising. The central bank is expected to maintain interest rates to curb inflation. (Reuters)
2. Key Events & Market Drivers
- Flood Damage: Major flooding in Punjab (Pakistan, India) has damaged cotton fields, along with basmati rice and other crops. This has raised fears of reduced yields and therefore constrained local supply. (Reuters)
- Import Policy Changes in India: India has temporarily waived import duties on raw cotton until end-September 2025. This policy is expected to increase import supply, which could pressure domestic cotton prices downward. For growers, this is viewed as potentially harmful. (Reuters)
- Monetary & Fiscal Policy in Pakistan: Because of flood-induced agricultural losses (farmland, crop damage) and potential food inflation, Pakistan’s central bank is likely to keep its policy rate at 11%, postponing any rate cuts. The IMF has also flagged fiscal reviews, particularly flood-spending and emergency response costs, as critical. (Reuters)
3. Impacts on Production & Supply
- Crop losses due to flooding are likely to reduce cotton output in affected districts of Punjab and Sindh. This leads to tighter cotton availability in ginning and textile sectors.
- Exporters and mills may face higher input costs, particularly for cotton and food-related raw materials (e.g. due to inflation, disrupted supply chains).
- Increased unsold or delayed cotton stocks are expected as buyers delay purchases pending clarity on supply damage and import policies.
4. Outlook & Indicators to Watch
- Prices: Local cotton prices in Pakistan may rise due to supply shortages, but open import channels (if allowed) could moderate increases.
- Policy: Watch announcements regarding crop-loss compensation and subsidies for affected farmers. Also how the temporary import duty waiver in India plays out.
- Futures: ICE futures and US spot rates will indicate global sentiment. Any sudden swing in demand or weather could push prices up or down.
- Inflation: Food inflation in Pakistan will be tightly linked with crop losses, especially in staples. Cotton may also see inflation of associated goods (textile inputs, export goods).
- Interest Rates / Finance: As the central bank maintains rates, financing costs for textile mills remain high. That may slow buying of raw cotton unless there is strong demand or support.
5. Bottom Line
In summary, from 6-13 September, the cotton markets have seen:
- Mild gains globally in spot cotton, but below last year’s levels.
- Domestic pressures in Pakistan from floods and policy uncertainty.
- Possible downward pressure on local cotton prices in India due to import duty waivers.
- Increased risk of inflation, supply chain disruptions, and uncertainty for agricultural output.