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The Cotton Corporation of India has forecast production this season to September at 37.5 million bales (170 kg each) against 33.4 million bales last crop year. Cotton Association of India, on the other hand, has forecast a crop of 38.05 million bales (35.675 million bales). The Cotton Corporation of India's forecast pegs cotton consumption at 29.7 million bales. The total availability this year is projected at 42.7 million bales. Cotton exports are expected to touch 9 million bales. Total supply, including imports, is expected to be 38.7 million bales, leaving four million bales of carry-forward stocks. This suggests that this year supply will exceed demand. Export numbers from the Cotton Corporation of India suggest that 5.5 million bales have been exported till the middle of January. Arrivals totalled 15.14 million bales till January 26. Fresh crop arrivals are expected during January-March, limiting any gains in the commodity. However, robust demand from domestic mills and better exports, including that of yarn, could result in demand remaining healthy this year for Indian cotton.

Global scenario: According to the International Cotton Advisory Committee, global cotton production is projected at 25.75 million tonnes, down four per cent from last year. Total supply is estimated at 43.54 million tonnes, up five per cent. Global consumption is projected at 23.76 million tonnes, 1.8 per cent higher while exports are projected to decline by 15 per cent year-on-year.

China factor: Meanwhile, China has declared that it would discontinue its controversial stock reserve policy during 2014-15 and support domestic farmers by extending subsidies to them. Production is pegged at 33 million bales in 2013-14 and consumption of 36 million bales can limit the downside. With China's stock-to-use ratio being 162 per cent, chances of rise of prices are minimal from current levels. A lot will depend on 2014-15 plantings that will start in a few months from now. According to ICAC, area under cotton in China is projected to decline to 3.9 million hectares next season.

Price Outlook: Prices have corrected over the last few sessions on ICE US and in domestic markets. Internationally, cotton prices have rallied supported on reports from the US that ending stock is the lowest in four years. Prices were also supported by strong demand for US cotton against limited supplies for the commodity. Gains were capped on rising worries over the pace of economic growth in emerging markets. The upside in international prices may be limited on the account of the Chinese New Year holiday. Prices could see some range-bound trading with a key support at 82 cents/pound and key resistance at 88.56 cents/pound. Indian prices could also correct in the short-term on higher arrivals and weak international markets. On the other hand, farmers are releasing stock in a staggered manner and better export demand for Indian cotton from Bangladesh and Pakistan could limit the downside. Yarn demand from China could also support raw cotton prices. Prices on ACE could see some range-bound trading with a key support at ₹42,350 and key resistance at ₹44,000 for a candy of 356 kg.