Brazilian Cotton Index dips 3.3% in July's first fortnight

18 Jul '14

2 min read

While producers have been allocating first batches of the 2013/14 season to accomplish contracts, purchasers have been postponing trades, expecting price drops as cotton harvesting and ginning advance. In this scenario, liquidity is low in the spot market and prices are moving down in Brazil.

In Brazil, the CEPEA/ESALQ Index for cotton type 41-4 decreased 3.3% in the first fortnight of July, and closed at 1.8439 real (0.8298 dollar) per pound on July 15. Sharp differences between asking and bidding prices still prevail.

For the time being, sellers have been making cash flow with the accomplishment of contracts. Then, they will close new trades. This fact is a good alternative for producers, once it might generate higher revenue compared to spot sales in the upcoming periods.

Anticipated export contracts average 0.84 dollar per pound (FOB Santos), way higher than current prices in the Brazilian spot market – the export parity is 0.74 dollar per pound, based on the Index for the Cotlook A. Purchasers, in turn, need to pay contracts that are already closed, but, focused on possible price drops in the upcoming periods, they have postponed new trades.

Trades of anticipated contracts registered at BBM (Brazilian Commodity Exchange) total 767 thousand tons and account for only 45% of the production forecasted by Conab. From this amount, 58% are registered to export and 42%, to the Brazilian market.

In early July, Conab released new supply and demand data for cotton in Brazil. The domestic consumption for the 2012/13 crop was adjusted to 920.2 thousand tons, against 887 thousand tons estimated until the month before. For the 2013/14 production, there was an increase, to 1.7 million tons, against 1.67 projected until June. This is the result of higher number for the cropped area in Mato Grosso and Goiás States. Now, the supply might be 29.5% higher than the previous season.

CEPEA

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