The sharp rise in cotton prices has hurt the prospects of Indian exporters. They are unable to make new export commitments. Prices have surged by about Rs 2,500 a candy within a short span of a week to touch Rs 42,500. And this has happened at a time when the country has had a bountiful harvest.

Exporters feel speculators are responsible for the artificial rally in the crop. During the days following November 8, farmers were not unloading the crop because of the lack of liquidity. But now when conditions have improved, arrivals haven’t. And amid surging cotton prices, farmers anticipate higher return for the crop. The view is that many farmers anticipate realisations to further go up, and hence have held back the crop, causing an artificial rally.

Cotton prices in India were on a strong downtrend in the second half of 2016. After being stuck in a narrow range all through December, cotton prices began the New Year with a bang. Along with restricted arrivals, the Cotton Corporation of India’s decision to purchase at market price from various parts of the country has also aided this price reversal. Traders with a medium-term perspective can make use of dips to go long near Rs 20,000.