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Firm demand strengthens Brazilian cotton prices
19
Oct '13
Some cotton growers were firmer in regard of prices in the first fortnight of October. Moreover, the demand of some processing companies was slightly higher. This scenario has strengthened cotton quotes. Between September 30 and October 15, the CEPEA/ESALQ Index for cotton type 41-4 upped 1.17% and closed at 2.1605 real (0.9892 dollar) per pound on Oct. 15.

Differences between asking and bidding prices were high in early October. The industry was purchasing only small batches to replenish stocks and was unwilling to pay higher quotes. Most part of these companies has been requiring the high-quality product.

Many cotton growers, in turn, did not need to make cash flow in early October. Therefore, producers took advantage of the moment to trade the product in the Brazilian spot market at higher prices.

Conab (National Company for Food Supply) data released at the beginning of October indicated that the planted area in Brazil in the 2013/14 crop may increase between 16.8% and 22.5%, and it might total from 1.043 million to 1.094 million hectares.

If weather conditions are favorable, the cotton production may total between 1.59 and 1.67 million tons, for an increase of 329.6 thousand tons comparing to the 2012/13 crop, according to Conab. The yield is forecasted at 1,527 kilos per hectare (+4.7%).

Conab indicates that planting activities may start in the second fortnight of October in São Paulo, Paraná and southern region of Mato Grosso do Sul. In other regions, the planting may start between November and December and it might extend until January in Mato Grosso, Goiás and in Barreiras (Bahia State).

As for exports, Conab says that they may amount 570 thousand tons in the 2013/14 crop, 7.5% more than in the previous. The increase is attributed to expectations that seasons in the US and China (world’s major producers) might be lower than that registered before. Moreover, international price rises of cotton may encourage Brazilian producers to tip the scale towards exports.

Therefore, the Brazilian production may meet the domestic demand and part of the international demand. The total supply (initial stocks + production + imports) may total 2.08 million tons, while the total demand (domestic consumption + exports) is forecasted at 1.5 million tons – Conab data. As a result, ending stocks estimated would total 590 thousand tons, the enough to satisfy the demand from the Brazilian industry in the off-season period, according to Conab.

Center for Advanced Studies on Applied Economics (CEPEA)

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