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CEPEA/ESALQ cotton index soars in January
03
Feb '11
On Jan. 24, cotton prices hit a new record in the Brazilian market and at New York Board of Trade (ICE Futures). The Center for Advanced Studies on Applied Economics - CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) reached 3.4862 reais or 2.0850 dollars per pound, the highest real value (deflated by IGP-DI December/10) since Cepea data began, in June 1996. The previous record, also considering deflated values, was registered in mid-January 2004.

In late January, cotton prices in both Brazilian (CEPEA/ESALQ Index) and international markets (ICE Futures and Cotlook A) remained hitting new records in real terms (IGP-DI December/10).

The 2009/10 season has ended with the lowest stock/consumption ratio over the last 15 years, which reflects a slight reduction of the world supply and a fast increase of the demand in that period. The harvest of the next Brazilian crop will start in June and might pour into the market 54% more of the product compared to the previous season, according to data from Conab (National Company for Food Supply). In world terms, the increase is forecast to reach 13.7%, according to USDA.

In the accumulated of January, the CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) edged up a whopping 23%, closing at 3.5830 reais or 2.1403 dollars per pound on Jan. 31.

Liquidity was not expressive in that period, however, the firm position of producers regarding the low availability of cotton for prompt-delivery underpins quotes. Some cotton growers are focused on the second crop of cotton, which is delayed due to the excess of rains that jeopardizes the soy harvest.

In this scenario, dealers, operating as sellers, have been willing to trade and are taking advantage of current high prices to sell the stocked product. Only a few sellers are flexible in terms of values. Industries, in turn, purchase the product only for immediate needs. In many cases, trades are limited by the difficulties to find batches of higher quality cotton.

CEPEA - Center for Advanced Studies on Applied Economics

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