Agriculture Market Update (Cotton & Crude Palm Oil) Tuesday, 06 November 2018

Agri-Commodity actively traded on MCX Cotton Crude Palm Oil (CPO) Mentha oil Cardamom * Internationally linked Agricultural Commodities

Generic Factors affecting Agri-commodity prices Area and Production estimates – World & Domestic Monsoon forecast (IMD) - April and June Seasonality – Rabi/ Kharif season crop & Arrival Season – Peak /off season Demand and Supply Domestic consumption – Mill use, crushing Export import data Government policy MSP declaration - June and November Import duty – Increase/Decrease Imposition of Stock limits Exchange /Regulator intervention in future trade Staggered delivery date Margin - Increase / decrease

World – Cotton Producing & Consuming Countries Asian Countries Dominate in Cotton production and consumption : Production : India is the largest cotton producing country followed by China, the US and Pakistan producing 70% of world cotton. Consumption: China is the largest consuming country followed by India, Pakistan and Bangladesh.

World Trade– Major Exporters and Importers US is the largest exporter of cotton with about 35% of total share in world export. The lead importers are Bangladesh, Vietnam and China.

Domestic Production Estimate As per the Cotton Association of India (CAI), cotton crop estimates for the year 2016-17 season at 341 lakh bales (of 170 kg each). According to CAI, in 2016-17, production in the central zone, which includes states of Gujarat, Maharashtra, and Madhya Pradesh, is estimated at 198 lakh bales, against 185 lakh bales last year. In the northern zone, which includes Punjab, Haryana, and Rajasthan, the cotton production may rise to 47 lakh bales from 41 lakh bales a year ago, while the south zone is expected to produce around 89 lakh bales, compared with 108 lakh bales a year ago. CAI estimated total cotton supply for the cotton season 2016-17 at 398 lakh bales, while the domestic consumption is estimated at 309 lakh bales which leaving an available surplus of 89 lakh bales.

Domestic Consumption steady, exports down As per USDA latest monthly report, India's cotton consumption is projected  to remain stable at 5.2 million tonnes in 2016-17. The consumption is set to decrease slightly because of mills might increase the share of other fiber in cotton-blended yarns due to higher and fluctuating prices of cotton in domestic market. For 2016-17 season, exports of cotton from India, the second largest exporter, are forecast to fall by about 31% to 958,000 tons. The fall is exports is attributed to expectation of lower demand from China and trade disturbances with the neighboring Pakistan.

Price influencing factors Monsoon forecast plays a very crucial role in cotton price. Weather during the cotton season at producing centers- Domestic and International Carry over stocks and area planted during the sowing season – 64 lakh bales / 110 lakh bales (2016-2017) Minimum Support Prices (MSP) declaration and procurement decision. Government interventions in procuring cotton through govt agencies like CCI procurements and auctions during the off-season Import data and exports demand for Indian cotton Prices of cotton seed oil cake.

Domestic Consumption / Availability - CPO As per USDA latest monthly report, India's palm oil consumption will increase by 10.9% to 10.2 million tonnes (mt) in 2016-17. Last year the consumption was about 9.1 mt. The domestic consumption of palm oil over the years has increase from 8.20 mt in 2012/13 to 10.20 mt 2016/17 as per capita consumption of edible oil in the country increase by about 5-8 %. As per the estimation by Solvent Extractor Association (SEA), for 2016/17, the estimated oil consumption in the country per capita is forecasted at 16.89 kg. Thus, the requirement of edible oil in the country is approximately 24.4 million tonnes. The total availability of domestic edible oil in 2016/17 would be 8.17 mt. The domestic oil production of CPO is 0.27 mt and other than CPO will be about 7.9 mt in 2016/17. So there is more scope of edible oil imports in the country in the form of CPO and soy oil.

Higher Domestic Imports As per USDA latest report, India's palm oil imports in 2016/17 are likely to rise 10% to 10 million tonnes (mt) from a year earlier due to growing population and higher income levels drive up edible oil consumption. India's edible oil consumption is likely to grow 6.25 percent to 22.1 mt in the year to October 2017. The imports of edible oil particularly the palm oil will increase as country reduced import duty on crude palm oil to 7.5% from 12.5%, and on refined to 15% from 20% to ease inflationary pressure. Palm oil imports fell to 1.44 mt in oil year 2016/17 (Nov’16-Jan’17) against 1.71 mt a year ago.

Tariff Prices- CPO Recently government has cut base import prices (tariff charges) for palm products in India for the second successive fortnight makes prices cheaper to import. For 1st half of Mar, the prices of CPO and RBD palm oil cut by $30 and $11 a tonnes respectively. The tariff value or Base import prices revised every fortnight by the Central Board of Excise and Customs (CEBC). The tariff is determined and fixed taking into account the prices in international markets, as well as changes in the foreign exchange rate The fixing the tariff value means the import duty shall be chargeable with reference to the tariff value fixed by the CBEC. Governments imposes tariffs to raise revenue or to protect domestic industries from foreign competition which directly affect the prices of the goods in the domestic markets.

Price influencing factors Palm oil production in Malaysia and Indonesia and prices of rival edible oil like soy oil . Movement in currency Domestic oilseed production and per capita edible oil consumption estimates. Tariff values or base minimum import prices every fortnight by Government of India. Import taxes of refine and crude edible oil by Government of India Use of Bio-diesel mandate and export taxes by the respective government in Indonesia and Malaysia

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