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Cotton trade continues with downward trend in early Feb
20
Feb '13
Cotton trades moved at a slower pace in early February, and sellers were more flexible regarding asking prices, after significant price rises in January. The industry was indicating a slight interest for large batches and pressed down quotes in Brazil, which were also influenced by the international market. Moreover, importers decreased their demand for product from Brazil and the United States, which helped to press down quotes at ICE Futures.

In spite of concerns with the current Brazilian season and forecasts that the 2013/14 world production will be lower, high stocks in Brazil and in the world prevail. In Brazil, for the second consecutive year, Conab (National Company for Food Supply) indicates that the year ended with stocks at around 500 thousand tons. Therefore, even if the Brazilian output reduces, the availability in the domestic market would be roughly two million tons in the second semester – considering the possibility of imports to total 60 thousand tons in the first semester (off-season). However, the quality of the stocked product is another aspect to be considered.

In this scenario, the industry pressed down quotes in early February. Although producers were refrained, cotton dealers were willing to trade the product available, accepting price bids. 

The CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, 8-day payment) moved down 1.57% in the partial of February (January 31 – February 15), averaging 1.8133 real (0.9218 dollar) per pound on Feb. 15. 

Data from Secex (Foreign Trade Secretariat) indicate that Brazil shipped 64.9 thousand tons of cotton in January 2013, 41.4% lower than in December, but 23.1% more than in January 2012. The average price of exports was 0.9065 dollar per pound last month.

Regarding the season that is developing, cotton growers from the south region of Mato Grosso State are concerned with unfavorable weather conditions for the soybean harvesting and the planting of the second crop of cotton. In some cases, producers have not been able to wrap up the planting in the desirable period, which may reduce the planted area compared to expectations. In other producing regions of the state, weather conditions continued favorable in early February.

According to Conab (National Company for Food Supply), the planted area with cotton in the 2012/13 crop may total 976.6 thousand hectares, 29.9% below that in the season before. The decrease is attributed to price drops in the period before the planting, to high production costs and more attractive prices of other crops (corn and soybean), according to Conab. Mato Grosso State, Brazil’s major producer, may register a decrease of 188.7 thousand hectares. 

Conab forecasts that, due to technological advances and favorable weather conditions, the Brazilian yield average may increase 8.2%, to 1,457 kilos per hectare in 2012/13. Therefore, the Brazilian production may total 1.4 million tons, 24.2% lower in relation to the previous season.

Conab also indicates that Brazilian exports may amount 665 thousand tons, and imports, 60 thousand tons. The domestic consumption is forecast to reach 887 thousand tons, and ending stocks, 415.4 thousand tons.

Center for Advanced Studies on Applied Economics (CEPEA)


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