Firm demand continues to push up Brazilian cotton prices

The CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, 8-day payment) moved up 8% in the partial of March (February 28 – March 15), averaging 2.0575 reais (1.0375 dollar) per pound on March 15.

Domestic prices are 25% higher than the export parity; however, firm demand from industry underpins prices. The industry prioritizes high-quality cotton, but its supply is low; therefore, players accept asking prices. Purchasers have low stocks and cannot halt production.

Besides the firm demand, the availability of the product for prompt-delivery is not significant in Brazil. In general, sellers offer only a few batches, waiting for production forecasts to close new trades. Part of sellers has already traded a part of the next crop in the domestic and international markets. In early March, cotton growers were focused on the soybean trading and agronomic practices for cotton crops.

The cotton planted area in the 2012/13 season may shrink 30.6%, totaling 967.7 thousand hectares – Conab (National Company for Food Supply) data. High production costs of cotton crops, low prices before the planting and high soybean and corn price levels are driving cotton growers to plant soybean and corn.

Conab indicates that the Brazilian production may total 1.4 million tons in the 2012/14 season, 25.4% less than the previous. Yield, in turn, may be 7.3% higher compared to the season before, totaling 1,466 kilos per hectare. The domestic consumption is estimated at 887 thousand tons and exports, at 642 thousand tons.

Data from Secex (Foreign Trade Secretariat) indicate that, in February 2013, Brazil shipped 47.4 thousand tons of cotton, 27% below that in January 2013 and 18.2% lower compared to February 2012.

Center for Advanced Studies on Applied Economics (CEPEA)