Cotton suffers major losses in floods:

Pakistan, the world’s fourth largest producer of cotton, is set to lose millions in export earning in the wake of the devastating floods that has submerged vast tracts of land in the cotton growing region of the country, says a report in The Financial Times.

The paper said the losses have already rippled across global commodity markets.

Pakistan’s shortfall looms at a time when the cotton market is already tight because of surging demand in China and low supplies elsewhere. Cotton on the ICE Futures exchange, a benchmark, has neared 90 cents a pound, the highest since March 2008, and close to a level last seen in 1995. Prices have gained 12 per cent in the past month.

Clothing companies, such as Levi Strauss or UK-based Next, have warned of rising retail prices. Jagdish Parihar, managing director of global cotton at Olam, the trading house, says the floods have “created a scare of cotton shortage”, adding that even before the disaster the “world supply-demand balance was extremely tight.”

The International Cotton Advisory Committee, an intergovernmental body, this week lowered its forecast for Pakistan’s crop by 15 percent, or 300,000 tonnes, to 1.9m tonnes. The ICAC estimates that 6-8 percent of the cotton growing area has been lost entirely and persistent moisture after the deluge could aggravate losses.

However, experts say precise damage assessments are impossible until the waters subside. “We admit it’s just a flat-out guess,” says Terry Townsend, the committee’s executive director in Washington. In Pakistan, analysts fear the worst.

“In some of the most vital areas for cotton, the floods have damaged as much as 80 per cent of the fields. The worst is not yet over, with more rains still being predicted,” says Muneeruddin Khan, former head of the cotton research institute of Punjab. Mr Khan believes that well over a third of the crop in Punjab and Sindh, another cotton-rich province, is in danger of being lost.

The guesswork extends to cotton markets. Pakistan’s mills, prized for their yarns and high-quality finished textiles such as bed linens, consume more than domestic farmers typically grow, putting the country among the worlds top five importers. Depending on the extent to which the flood hinders mill operations, Pakistan could call on more foreign fibre, straining global supply.

“If the Pakistani textile industry can operate at anywhere near the level they used to theyre going to have to replace lost production. And there’s a pretty short supply of cotton right now,” says David Collins of Cotton Council International, which promotes US exports of the fibre.

The paper said the Pakistan floods come as the ratio of global cotton stocks to consumption is already poised to fall to its lowest level in 15 years, due to low supplies over the past five years, according to the US Department of Agriculture.

“Global stocks of cotton have been strained,” says Luis Rangel, vice-president of commodity derivatives at Icap Futures, the brokers.

“Any confirmed reduction in Pakistan’s cotton output will definitely stress the global supply chain and continue to run prices higher.”

Cotton farmers in the US whose crop the USDA estimates will grow by more than half this season compared to last year stand to benefit the most. China, the worlds largest cotton producer, markets its crop domestically. Neighbouring India has restricted cotton exports, because of pressure from its textile industry.

Meanwhile, the paper added Pakistan’s cotton farmers face economic ruin, because standing water suffocates root systems and kills plants.