The Implementation Of India’s Cotton Export Restriction Policy May Further Aggravate The Global Cotton Tension

Since the middle of March, India has been hit by a heat wave. The highest temperature in March and April has reached the highest value in the same period since 1901. The sudden warming has brought a great impact on the local agricultural production and even the life of the residents. In order to ensure domestic supply, India’s emergency introduction of wheat export restrictions does not rule out the possibility of issuing a cotton export ban. As of May 20, the price of CBOT wheat was 1168.75 cents / bushel, and the price of ice2 cotton was 142.27 cents / pound, both of which were at the historical high of nearly a decade. Against the background of extreme weather, the market is generally concerned about the high temperature in India and its subsequent impact on the already high agricultural product prices.


We believe that the high-temperature weather in March and April in India is mainly caused by the anomaly of the atmospheric pressure system. The sudden high temperature caused the lack of precipitation in central and northwest India. At the same time, the Indian Meteorological Bureau predicted that the heat wave model would continue in May.


We believe that extreme weather has a certain negative impact on India’s agricultural production, with wheat and cotton producing areas bearing the brunt. As for wheat, as the conflict between Russia and Ukraine continues, Indian wheat, as an important new export increment in the world, is gradually increasing its impact on prices. At present, the adverse weather in the northern wheat producing area may lead to a reduction of 1 million tons of wheat in India, and the reduction is still expanding. With the promotion of trade protection policies of various countries, the international wheat supply and demand may further deteriorate.


Looking ahead, with the timely adjustment of the restriction policy, the supply premium has gradually dropped,


In terms of cotton, April and may are the sowing season of new season cotton, and dry weather or unfavorable cotton emergence will disturb the output of 2022 / 23. Against the background of low global cotton stocks, although India’s cotton output in 2022 / 23 is expected to recover compared with last year, if the implementation of India’s cotton export restriction policy leads to an obvious contraction in export volume, it may further aggravate the global cotton tension, and the international cotton price may rise again under the influence of good news.


India’s “heat wave” pattern was formed ahead of schedule, and the climate conditions further deteriorated


► abnormal air pressure system causes India to enter heat wave [1] mode ahead of time. Generally, in winter and spring, the low-pressure system (Western disturbance) from the west of India will enter the plains of northwest India along with the South Branch westerly jet stream, and continue to move eastward and northeast. It will bring pre monsoon precipitation to the entire Ganges River Plain from March to April, and gradually enter the heat wave mode, reaching the peak in May. However, this year, the subtropical jet stream extends abnormally northward, resulting in the formation of a high-pressure ridge over the Indian subcontinent, This caused the hot and dry air mass to stagnate in the South Asian continent for a long time, leading to the triggering of this year’s heat wave pattern in March. At the same time, under the influence of La Nina climate in the winter of 2021, the pre monsoon rainfall in India was greatly weakened, which intensified the high temperature from March to April. According to an official of the Indian Meteorological Bureau, the lack of precipitation is an important factor in the formation of this year’s heat wave.


► the heat wave model has led to an abnormal temperature rise in India and further deterioration of climate conditions. According to the data monitoring of the Indian meteorological department, the temperature in India has increased abnormally since March this year. At the end of April, the orange heat wave warning was issued in Rajasthan, Madhya Pradesh and other regions [3]. From the perspective of meteorological indicators, the national average precipitation in India in March 2022 was 8.9 mm, which was 71% lower than the long-term average (LPA) and the third lowest precipitation in the same period since 1901. At the same time, the drought in central and northwest India is serious, and the precipitation is 87% and 89% lower than that in the same period in history. Under the low precipitation, the average temperature in India in March was 26.67 ℃, an increase of 1.61 ℃ over the same period in history. After April, the extreme climate in India further deteriorated. Although the southern peninsula ushered in precipitation, the northwest and central regions were still hot. The average maximum temperature reached 36.32 ° C and 38.04 ° C respectively, both of which were the monthly average historical highest temperatures since 1901, and the precipitation was 82% and 55% lower than the average. In May, the Indian Meteorological Bureau predicted that the temperature in the north and west of India might further rise to 50 ℃, and the climate situation was still not optimistic.


Cotton: extreme weather has hindered the planting of cotton in India in the new season. Under the background of low inventory, if India’s export restrictions are implemented, it may provide a driving force for international cotton prices to rise


► the inventory of old printed cotton is low, the domestic cotton price is high, and the adverse weather may cause the planting progress of the new season to be blocked and affect the output. In 2021 / 22, the cotton planting area in India decreased significantly. In addition, due to the adverse factors such as increased precipitation and intensified insect pests, the cotton output in India is expected to decrease by 7.6% year-on-year to 25.5 million bales, driving the inventory to decrease by 33.5% to 7.94 million bales, and the inventory consumption ratio to a record low in the past decade. Against the background of tight supply and demand of cotton in India, the focus of spot price of shankar-6 in India has obviously moved upward within one year. As the main cotton producing areas in northern India enter the new season sowing time from mid April to mid May, the high temperature weather poses a challenge to the new season cotton. Under the condition of heat wave, the evaporation of soil water is accelerated, and the difficulty of crop germination is increased. Farmers need more irrigation to ensure the normal growth of crops. However, the current shortage of electricity caused by coal shortage in India also makes it difficult to guarantee irrigation water. Therefore, the cotton planting period in India may be postponed to the end of May. Although the willingness of farmers to plant cotton in 2022 / 23 has been affected by the high cotton price, if the emergence situation continues to be affected, it may pose a threat to the cotton yield in the new season.


► the export restriction policy may be implemented, and the international cotton supply may shrink. At present, the price of cotton in India is high. In order to stabilize the rise of cotton price, the Ministry of finance of India announced on April 13 that tariff exemption will be implemented for cotton imports from April 14 to September 30. However, as of May 13, the spot price of shankar-6 increased by 10.47% month on month to 178.25 cents / pound, which shows that the import tax exemption policy has limited effect on stabilizing cotton prices. While the cotton planting in the current new season is blocked, the cotton price in India keeps rising. Therefore, the Indian government said that it would not rule out the issuance of a ban on cotton exports until September 30. According to USDA’s forecast, India’s cotton exports in 2022 / 23 are expected to be 4 million bales, accounting for 8.41% of global exports. We believe that under the current drought in the US cotton producing areas, Indian cotton exports are an important factor affecting the global cotton supply. Although India’s cotton output in 2022 / 23 is expected to recover compared with last year, if the implementation of India’s cotton export restriction policy leads to an obvious contraction in export volume, it may further aggravate the global cotton tension, and the international cotton price may rise again under the influence of good news.

Post time: Aug-31-2022