Hurricane-hit US Brings Unexpected Business Bonanza for India

By Little India Desk | September 16, 2017

The United States, the world’s biggest cotton exporting nation, is facing a setback in the business following the devastating Hurricane Irma. Most top cotton buyers are now heading to India to secure supplies.

Dealers, most of whom are in Asia, fear that the fierce storms that hit the United States recently have negatively affected the size and quality of the crop, Reuters reported.

In the last seven days, India, which is the second biggest cotton exporter after the United States, has sealed deals to sell about a million bales of the crop to top buyers like Taiwan, Vietnam, China, Pakistan and Indonesia, as compared with the sale of 3,00,000 bales two weeks back. The cotton exported to these countries will be later sold to big brands like H&M, Inditex -owned Zara and Wal-Mart Stores Inc.

Industry experts believe that similar contracts will come for India in the coming weeks too, which will help the country’s export grow by a quarter in the 2017/18 season beginning October.

“Indian cotton has great chances this year,” Chirag Patel, the chief executive at Jaydeep Cotton Fibers Pvt. Ltd., one of Asia’s leading exporter, told the news agency, adding that top cotton buyers are switching to Indian crop from the United States.

America’s Loss, India’s Gain

Georgia and Texas, the major cotton producing states in the United States, are the two areas where Hurricane Irma and Harvey showed their fury. Cotton plants have the ability to survive storms, but the impact of the hurricanes will make them more prone to insects and diseases. Cotton buyers believe that Hurricane Irma has negatively impacted the quality of the crop.

“We definitely lost cotton in Texas. It wiped out 500,000-600,000 bales,” said Peter Egli, risk manager at Plexus Cotton Ltd.

According to the US Department of Agriculture, in 2016, the country exported 86 per cent of the cotton produced, of which 69 per cent went exclusively to Asia.

Other cotton producers like Brazil and Australia get benefitted from lower supplies from the United States, but they will find it hard to match the low prices offered by India. A bumper harvest is currently going on in the nation to cash in on the opportunity to the fullest.

“Traders in India, also the world’s biggest cotton producer, signed their export deals at around 80 cents per lb on a cost and freight basis, nearly 2 cents lower than the supplies from the United States,” dealers said, according to the report.

A record harvest of 40 million bales is expected in India during this quarter beginning from October 01. Patel also added that the record harvest will bring domestic prices down, and make the export business more competitive.

“Favorable crop conditions would help India sell 7.5 million bales of cotton on the world market in 2017/18 against 6 million bales in the previous year,” Nayan Mirani, a partner at Khimji Visram & Sons, a leading cotton exporter, said.

Some traders believe that India’s export business in 2017-18 may even cross 8 million bales if China, the biggest cotton consumer in the world, steps up to buy the crop from India.

Advantages of Buying Cotton from India

India was finding it hard to fetch deals over the past few months for various reasons, such as the rising value of Rupee, and unattractive global prices. But the recent Hurricane Irma and a rally in global prices made things easier for Indian traders to obtain profitable deals.

Proximity is another crucial factor that makes India a favorite destination among Asian buyers. Cargoes from the United States usually take more than 50 days to reach places like Pakistan, Bangladesh and Vietnam. On the other hand, Indian cotton to these nations can reach within two weeks.

“India’s new season crop will be available to buyers from October, but the supplies from the United States will reach consumers only in January,” said Mirani of Khimji Visram, a top exporter.

Even in the midst of these unfavorable developments, the U.S. Department of Agriculture this week said that cotton output in the country is seen at 21.76 million bales for 2017-18 as compared to the 20.55 million bales projected last month.