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India's MCX cotton futures contract increases by 294% in June 2018

posted onJuly 27, 2018

The Multi Commodity Exchange of India (MCX) received extremely encouraging response with Cotton deposits in the current season (Oct’ 17-Jul’ 18), increasing notably by 294 per cent in June 2018 vis-a vis June 2017. 

MCX witnessed a 57 per cent jump in its cotton contract’s average daily volume from 2605 lots (1 lot = 25 bales) in June 2017 to 4085 lots in June 2018. Correspondingly, there has been a substantial increase in average daily value from Rs. 132 crores to Rs. 231 crores over the said period. Moreover, the cotton stocks in warehouses hit a five year high at 161,000 bales in June 2018. The open interest stood at 13,581 lots at the end of June 2018. 

“The MCX cotton futures contract continues to go from strength to strength, and has proven to be national price benchmark and effective risk management tool for multiple stakeholder groups across the cotton value chain.” Mrugank Paranjape, MD & CEO, MCX said. 

India’s “cotton climb” has been steady for the past decade with the country taking the crown as the world’s No. 1 cotton producer, accounting for about 27% of the world cotton production. The major cotton producing states are Andhra Pradesh, Maharashtra, Gujarat, Punjab and Haryana. 

According to Cotton Advisory Board (CAB), India’s estimated production is 37 million bales of cotton in 2017–18 crop year as compared with 34.5 million bales in 2016-17. The acreage yield was 568 kg/ha in 2016-17 as against of 484 kg per hectare in 2015-16. As per the Confederation of Indian Textile Industry (CITI), the area under cotton cultivation increased to 122.59 lakh hectares in 2017-18 (up by almost 13%) from 108.45 lakh hectares. India's cotton consumption estimates to 31.6 million bales in 2017-18 (including non-mill consumption of 1.9 million bales) against 30.6 million bales in 2016-17. 

As per Cotton Association of India, India has been a major exporter of cotton since 2005–06, and currently, the world's second largest exporter. It is estimated that India had exported 7 million bales of cotton in 2017–18 compared with 5.82 million bales in 2016-17. 

India cotton

The US Department of Agriculture (USDA) anticipates world cotton production to fall 3.6 percent in 2018/19 to 117 million bales. Area devoted to cotton is projected to fall more than 3 percent, to about 32 million hectares, as Indian producers in states affected by bollworm resistance reduce plantings and Southern Hemisphere producers respond to lower relative prices following the Northern Hemisphere harvest. 

India, is expected to reduce production by 1 million bales from 2017/18, to 27.5 million. Area is also declining, to 11.5 million hectares, but yields are expected to rise after falling 7 percent in 2017/18. Higher yields are expected as higher-yielding states that were less affected by pest pressure in 2017/18 maintain cotton area, and have a larger share in India’s national-average yield in 2018/19. 

Having commenced operations in 2003, MCX is India’s first listed, national-level, electronic, commodity derivatives exchange. It is also the first exchange to introduce commodity options in the Asian country.In the financial year 2017–18, the market share of MCX was 89.58%.

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