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Low quality of cotton keeps liquidity low – CEPEA
17
Dec '11
In early December, the downward trend remained in the Brazilian cotton market. According to agents surveyed by Cepea, the low quality of batches and the devaluation of dollar pushed cotton values down.

According to data from Anea (Brazilian Cotton Exporters Association), between 10% and 15% of the Brazilian crop is classified below the quality standards agreed in contracts. As a result, discounts need to be applied to prices for the accomplishment of contracts.

Despite price drops, producers were willing to trade in the second week of December and were more flexible regarding quotes. However, asking prices were higher than bidding prices, which helps to explain the low liquidity.

Cotton growers, who were already capitalized, were focused on the accomplishment of contracts and the wrapping up of the cotton ginning.

Several companies remained refrained in early December, preparing to run at idle for the end-of-the-year period.

Most purchasers and sellers have left the market in early December, since there is not enough time to make deliveries this year.

Between Nov. 30 and Dec. 15, the Center for Advanced Studies on Applied Economics - CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) dropped 2.48%, closing at 1.6487 real or 0.8859 dollar per pound on Dec. 15.

According to data from Secex (Foreign Trade Secretariat), 136.4 thousand tons of cotton were exported in November. The amount is 21.9% lower than in October, but a whopping increase of 113.1% period on period to 2010. In the accumulated of the year, shipments have totaled 646.7 thousand tons, a record.

Data from Conab (National Company for Food Supply) indicate that 1.36 million hectares will be planted in the 2011/12 crop, 2.7% lower than the previous season (1.4 million hectares). The yield might be higher or the same as in the crop before. Production, consequently, would be 1.3% below that in the 2010/11 season, totaling 1.93 million tons.

The first forecast of Icac (International Cotton Advisory Committee) for the 2012/13 crop indicates that the cultivated area for the world might be 33.3 million hectares, 8% lower than in the previous season. Production may drop 6%, amounting 25.14 million tons.

Center for Advanced Studies on Applied Economics - Cepea

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