Competition for cotton planting area increases in Brazil
Agents seem to be more prudent at the beginning of the new cotton season. The profitability is still positive, however, lower than that in the previous crop and similar to the profitability observed for other cultures competitors for planting areas, such as corn and soybean. Therefore, the increase in the cotton planted area may be limited in some states in Brazil and in other countries.
The cotton supply soared in the 2010/11 season both in Brazil and in the world, while the demand has not followed the same pace. In Brazil, according to data from Conab (National Company for Food Supply), production picked up a whopping 64% in the 2010/11 crop, to 1.96 million tons, due to the increase of 67.6% in the planted area, reaching 1.4 million hectares. The demand, on the other hand, dropped by 8% to 955 thousand tons. As a result, the alternative was the exports. In 2011 (until November), Brazil shipped 646.7 thousand tons – from which 596.5 thousand tons were shipped only from July to November, a record.
Concerning the 2011/12 season, data from Conab indicates that the planted area with cotton might shrink 2.7% compared to the cultivated in 2010/11, totaling 1.36 million hectares. The decrease is attributed to the drop in prices in both the domestic and international markets and to the high production costs. However, data from producers' associations, such as in the Mato Grosso state, differ from Conab's data.
In the world terms, in the 2010/11 crop, the planted area moved up 11.2% and production, 13.4%, according to the USDA. Meanwhile, the demand downed 4% due to high cotton prices, which has led to the replacement of natural fibers for synthetic fibers.
In December, the USDA indicated that the world 2011/12 season will amount 26.87 million tons, an increase of 7.1% in relation to the crop before. The demand may total 24.24 million tons (USDA data), 2.5% below that registered in the previous season and the lowest since the 2008/09 crop.
It is worth noting that the production in the 2011/12 crop in the United States, harvested in 2011, dropped 12.6%. This fact will affect US shipments, the world's major exporter, and may favor other international players. According to the USDA, US shipments in the 2011/12 crop might amount 2.5 million tons, 21.4% below that verified in the previous season.
This aspect is important for countries that have a surplus in their domestic supply, such as Brazil, Australia and India. According to the USDA, India exports in the 2011/12 crop may increase 17.7%, to 1.3 million tons. Australia shipments may move up 59.5% (amounting 871 thousand tons) and Brazil exports might total 817 thousand tons, an increase of 90.1%. Consequently, Brazil would keep the world's fourth greatest exporters.
However, this scenario can be changed in the upcoming seasons, mainly because of expectations that Brazil may keep the planted area to around 1.4 million hectares.
Concerning the 2012/13 crop, Icac (International Cotton Advisory Committee) indicates that the world cotton planted area may total 33.3 million hectares, a decrease of 8% in relation to the 2011/12 crop. The production may reduce 6%, to 25.14 million tons, but still above the demand, projected to 25.02 million tons.
Data on supply and demand seem to indicate that there is no room for sharp price increases in the upcoming months and even years. If the demand soars, the scenario may change. However, for the time being, uncertainties concerning crisis, mainly in the euro zone, makes predictions difficult.
CEPEA - Center for Advanced Studies on Applied Economics