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Low availability of high-quality cotton halts downtrend
20
Aug '13
The low availability of high-quality cotton and price rises in the international market halted the downward trend in Brazil in early August. Moreover, dollar quotes at high levels keep import and export parities stable, leading sellers to be even firmer regarding prices.

The CEPEA/ESALQ Index for cotton type 41-4 upped 7.21% in the first fortnight of August and closed at 2.2395 real (0.9558 dollar) per pound on Aug. 15. 

Cotton growers still prioritize the harvesting, ginning and accomplishment of contracts of cotton, mainly those for export. These agents were still expecting cotton ginning advances and the identification of types obtained to meet anticipated trades and, then, offer the product in the spot market.

Some processors were concerned with the availability of the product in this second semester. Therefore, purchasers try to close anticipated contracts, aiming to build stocks for at least three months and to reduce seasonality and price risk. 

Data from Conab (National Company for Food Supply) released in early August indicated that the Brazilian cotton supply may reduce 32.7% compared to the previous. The national production in 2013 is almost the same as that the Central-Western region obtained in 2012; in other words, the supply difference among years was equivalent to the total produced in the Northeastern, Southeastern and Northern regions in Brazil. Conab estimates a harvested area of 894.1 thousand hectares (-35.8%) and a yield of 1,426 kilos per hectare (+4.9%).

Still according to Conab, Brazil started 2013 with 500 thousand tons, which, added to the 1.275 million tons supply and forecasted imports of 35 thousand tons, the domestic availability would be 1.8 million tons. The domestic consumption is projected at 887 thousand tons and exports, at 530 thousand tons, which would keep ending stocks in December/13 at 394 thousand tons. These stocks would be relatively low, which would not allow major price changes in Brazil.

Center for Advanced Studies on Applied Economics (CEPEA)

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