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Low liquidity still prevails in Brazilian cotton market
Feb '12
Center for Advanced Studies on Applied Economics (CEPEA) reported that cotton values have kept the downturn in the domestic market in early February. Low liquidity still prevails in Brazil and different expectations were observed between purchasers and sellers. In the international scenario, estimates indicating an increase in production and in world stocks have pressed down prices, since there are no estimates that the demand will significantly bounce back.

In Brazil, purchasers say their inventories are replenished for February, while they wait for new price drops. Due to the postponing of purchases, average prices of cotton kept dropping every day. Only in some days, purchasers were more willing to trade, but with interest in small batches. Drops in the international market have also influenced attempts of purchasers to trade cotton at lower quotes.

Some sellers have been flexible, but only when trades involve small batches and a low-quality product. As for higher quality cotton, producers remain refrained, waiting for the interest to purchase to pick up in the upcoming months, which may push up values. In general terms, players are optimistic regarding the demand in the weeks after the carnival holiday in Brazil (Feb.18-22). It is worth noting that producers are finishing the planting activities and, soon, they will be more focused on anticipated trades of the product of the new season.

Between Jan. 31 and Feb. 15, the CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) dropped 2%, closing at 1.7028 real or 0.9877 dollar per pound on Feb. 15.

On Feb. 9, Conab released new estimates for the 2011/12 crop, with slight increases in planted area and yield in several states. Altogether, the cropped area may reach 1.41 million hectares, 0.4% more than in the crop before and the highest since 1991/92. The average yield might be 1,423 kilos of cotton per hectare, 1.6% more than in 2010/11. Consequently, production may amount 2.002 million tons, 2.2% above the previous crop and a new record for Brazil.

Center for Advanced Studies on Applied Economics (CEPEA)

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