Cotton acreage may fall 40% in Brazil – Plexus report

With the exception of the Pacific Northwest, basically the entire country has been suffering from oppressive heat. The most serious consequence from these record temperatures and the lack of rainfall is the high evaporation rate.

After nearly two years of La Niña, which ended in April and which left 56% percent of the country in dry or drought conditions, the US experienced a warmer than normal spring, which quickly evaporated the precipitation that fell during the second quarter. At the end of June no less than 72% of the nation was experiencing dry or drought conditions and this percentage is likely to go up further.

So where do we go from here? For now the cotton market can still afford to play out bearish tendencies, but the time will come when market participants can no longer ignore these much more attractive competing crops. If food crops maintain their current price level or move even higher, cotton prices will sooner or later have to rally.

There are two scenarios under which that may happen. Either cotton continues to make itself unattractive and loses a large percentage of its acreage next season, which will eventually force prices higher, or cotton gets with the program and rallies in defense of its acreage. It’s just a matter of timing! In the meantime we are likely going to see a continuation of the trading range, with support in the mid-60s and resistance in the mid-70s.

Plexus Cotton Limited