Cotton prices have increased significantly over the last eight months, a period when the harvesting is intensified and Brazilian cotton exports move up. The 2011/12 season (harvested in 2012) was the second highest in history, and purchasers expected significant price drops in Brazil, which was observed in the first semester of 2012. However, the trend changed and domestic and export demands underpinned prices.
In the second semester of 2012, significant volumes exported recovered prices reducing domestic inventories. From July 2012 to January 2013, the average price to export was 0.9230 dollar per pound, according to Secex (Foreign Trade Secretariat), higher than in the Brazilian market, of 0.8008 dollar per pound (according to the CEPEA/ESALQ Index for cotton type 41-4, delivered in São Paulo city).
The need to keep exports high if the Brazilian production surpasses more than 1 million tons will lead producers to close trades in the international market. This is likely to happen even if daily figures based on the Cotlook A show lower export parity in comparison to the domestic prices, as the current scenario.
Moreover, producers had good revenue in 2012, with exports and with good price levels for soybean and corn, and do not have immediate need to make cash flow.
On the other hand, the industry purchased only to meet immediate needs in 2012. In the first months, purchasers were expecting the harvesting to push down prices, however, quotes started to increase, causing fears regarding trades involving high volumes.
As a result, monthly average prices in the Brazilian market registered, in February, the seventh increase in eight months (since July, period of stepping up of the harvesting) and the fourth in a row. Considering daily data, between late June 2012 and late February 2013, domestic prices (CEPEA/ESALQ Index) upped 23%.
At the end of February, liquidity reduced, but trades continued to be closed at firm prices. Most trades involved only volumes for immediate consumption, and some companies were interested in anticipated contracts based on the CEPEA/ESALQ Index due date for the payment, expecting prices to decrease in the upcoming months.