For the second time in two years, India halted exports of cotton because of fears that higher raw cotton prices would hurt the domestic cotton processing industry.  India is currently the second largest exporter of cotton.  Actions by the Indian government in recent days have added to the confusion and it must development a better flow of market information and political decision making.

Exporting quantities of cotton that impact international markets is a new experience for India. According to estimates by the Foreign Agricultural Service (FAS) of USDA, for the 25 years prior to the 2005/06 marketing year in only three years did India export more than 1 million 480 pound bales of cotton.  In five years clustered in the early 2000s, India imported more than 1 million bales each year.  India’s cotton yield per acre harvested began to increase sharply with the use of hybrid cotton seed and biotech seed resistant to insect pests.  For 2003/04 through 2011/12 marketing years cotton yields averaged about 500 pounds per acre, after averaging 300 pounds per acre in 1993/94-2002/03 and 250 pounds in the prior 10 years.

The higher yields and profitability pushed annual cotton acres harvested from 8-9 million 10 years ago to 12.2 million for the 2011/12 marketing year.  Production has more than doubled from 11-12 million bales annually to 27.0 million bales in 2011/12.  Domestic consumption has increased from 13.5 million bales per year 10 years ago to 19.8 million bales in 2009/10, 21.1 million bales in 2010/11 and 19.5 million bales this year.  Almost all the textiles produced are used in the domestic market of 1.2 billion people.  Textiles producers are major employers and recently profits have been marginal or negative.

Cotton has been traded throughout the world for decades, but now has a relatively small number of major exporting and importing countries.  The U.S. exported 14.4 million bales last year and is projected at 11.0 million bales this year.  According to FAS, India is next at 5.1 million bales last year and 7.8 million bales this year.  Australia had exports of 2.5 million bales last year and 4.0 million bales are projected this year as it recovers from smaller crops caused by low irrigation water supplies.  Brazil is also expanding exports moving from 2.0 million bales last year to 3.9 million bales this year.  The next three largest exporters projected for this year are Uzbekistan at 2.6 million bales, Greece at 1.0 million bales and Turkmenistan at 850,000 bales.  India cannot limit exports without having serious market impacts.

The import side of the global market is dominated by China with imports of 12.0 million bales last year and projected to increase to 18.5 million bales this year, 47.7 percent of total trade.  Much of the additional cotton imports will be placed in reserve stocks.  Traders estimate that 70 percent of Indian exports regularly go to China, while some Indian officials believe 85 percent of current exports are going to China.   The next largest importer is projected to be Bangladesh at 3.3 million bales followed by Turkey at 2.5 million bales and Indonesia at 2.0 million bales.

World cotton stocks at the end of the marketing year on July 31, 2012 are projected by FAS at 62.3 million bales, up from 60.8 million bales last year and 47.3 million bales at the end of the 2009/10 marketing year.  China is expected to hold stocks of 20.1 million bales, 32.3 percent of the world total, and up from 18.1 million bales last year and 11.6 million bales two years ago.  India’s stocks are expected to be 7.9 million bales, down from 9.3 million bales last year, but up from 7.6 million bales the previous year.  Textile producers suggest a need to have 2.5 months of raw cotton, about 4.2 million bales, at the start of the marketing year.

Communications within the Indian government has been a problem.  The Agriculture Minister Sharad Pawar said he had no knowledge of the Directorate General of Foreign Trade under the Commerce Ministry considering a decision on exports and when announced, he immediately raised the issue with Prime Minister Mammohan Singh.  Textiles Minister Kiran Dhingra said exports of 7.3 million bales (480 pound bales), 700,000 more than previous expectations of 6.6 million bales, would pull carryover to 2.8 million bales when the official government target is 3.9 million bales.  Traders had registered shipments of 9.4 million bales.