Brazil: Selling in domestic cotton market lucrative than exporting

"In general, in the first half of June, agents from the Brazilian cotton market continued focused on closing term contracts, keeping liquidity low in the national spot market. Domestic processors were purchasing small volumes, enough to meet prompt demands and/or replenish inventories. Traders were interested in buying cotton, aiming to accomplish contracts previously closed," the Sao Paulo-based Center for Advanced Studies on Applied Economics (CEPEA) said in its latest fortnightly report on the Brazilian cotton market.

Between May 31 and June 15, the CEPEA/ESALQ Index for cotton dropped by 1.6 per cent, to 4.9603 BRL/pound on June 15.

Meanwhile, Brazilian cotton exports are heading to a new monthly record in June. In the first eight working days of the month, Brazil exported 47,200 tons of cotton, according to data from Secex (The Secretariat of Foreign Trade), which accounts for 83.2 per cent of the total amount exported in June 2020 (21 working days). The daily average of shipments is currently at 5,900 tons, which works out to be 7.5 per cent higher than the daily average in May 2021 (5,500 tons).

As for anticipated deals, agents from some processors were trying to purchase cotton through term contracts, majorly for the 2020-21 crop, during the first fortnight of this month, the CEPEA report said.

Meanwhile, in a report released on June 10, Conab (Brazil’s National Company for Food Supply) estimated the area allocated to cotton crops in the 2020-21 Brazilian season at 1.37 million hectares, a decline of 17.9 per cent compared to 2019-20 season and 0.8 per cent down from that previously reported. Productivity is forecast at 1,713 kilograms per hectare, down 4.9 per cent from that last season. Thus, the output during the current season is expected to total 2.342 million tons, which would be about 22 per cent lower than the 2019-20 production.

Conab estimates Brazil's domestic cotton consumption at 680,000 tons in the 2020-21 season, against 600,000 tons last season. However, as the domestic availability is forecast at 4.11 million tons, Brazilian cotton exports may total 2.23 million tons in 2021, which would be a new record. Stocks are forecast at 1.2 million tons in December 2021, against 1.7 million tons in December 2020.

Fibre2Fashion News Desk (RKS)