In a recent report, the CGA said the prices of lint went down when local growers had already started delivering their crop for sale after the domestic price had been negotiated and concluded.
“At the start of the domestic cotton marketing season, ginners and growers negotiated and agreed on a pricing formula, based on the International Cotton Advisory Committee’s (ICAC) average lint price of US$1,62 per pound as projected to June 2011,” said the association.
“However, when they started selling lint, the market crashed to levels just above US$1 per pound.”
The report says about 80% of the cotton crop was then bought at prices of between 85 cents and 105c/kg, but prices became irrelevant when the market took a nose dive.
“The overall effect points to the fact that ginners bought seed cotton at prices outside the limits of the pricing model,” says the report.
The association noted that cotton is a strategic crop, which has the capacity to improve quality of lives and alleviate poverty for communities living in the cotton-growing arid regions of the country.
It also noted that the downward trend, occasioned by the global slowdown in the demand for yarn resulted in mills not ordering the lint, preferring to watch the market for even lower prices.
Consequently, prices fell to levels that made it difficult for ginners to profitably sell their lint.
At the prevailing rate where prices continue to decline and the forecast by the ICAC that prices will drop in the current 2011/2012 season, ginners are worried that lint would be sold at prices below the cost of production. Cotton production is projected by the ICAC to decline globally by over 2%.
But a CGA report added: “The lack of demand for cotton, combined with adequate global stocks is putting downward pressure on cotton prices.
Outside China, cotton stocks are expected to grow by 26% to 8,7 million tonnes in the 2011/2012 season. China’s 40 million households depend on cotton.”