Cotton futures on MCX closed higher on Monday due to lower level buying and good support from mill demand. India's 2016-17 cotton imports are set to jump more than a third from a year ago to a record 30 lakh bales on stronger rupees. On export front, country has so far contracted about 45 lakh bales in the current crop year, and total exports in the season could be around 5 million bales, down 30% from a year ago. As per USDA forecast, India’s 2017/18 cotton production forecast increase by 3.7% to 36.5 million 170 kg bales/6.2 mt. Area will increase to 11 million hectares from 10.5 mh in 2016/17.

Outlook

We expect cotton futures to trade sideways to down on reports of weaker fundamentals of sufficient stocks in the country due to good production, lower exports prospects and higher imports. Yarn production in the country is expected to be lower this year. Poor response to state auction in China may support prices.

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