Brazilian cotton prices dip in mid-March as market liquidity tightens

19 Mar '24

2 min read

Pic: Adobe Stock

Insights

Brazilian cotton market experienced strong sales in February, but a slowdown in mid-March due to decreased spot market activity and international price fluctuations.
The CEPEA/ESALQ Index showed a 3.26 per cent drop. Global cotton production and consumption forecasts by the USDA show a slight increase for the 2023-24 season compared to February's forecast.

In the Brazilian cotton market, February witnessed robust sales of manufactured products, but a noticeable slowdown occurred in mid-March as purchasers stepped back from spot market trades. This retreat has resulted in reduced liquidity, complicating the market dynamics. International price fluctuations have further contributed to keeping the domestic cotton prices under pressure, according to a report from the Center for Advanced Studies on Applied Economics (CEPEA).

The CEPEA/ESALQ Index, a key benchmark for cotton prices, experienced a significant decrease of 3.26 per cent, dropping to BRL 4.2223 (~$0.84) per pound by March 15 from its position on February 29. Market participants attribute the reduced trading volume to the ongoing disputes over quality and pricing between buyers and sellers.

Export parity figures from CEPEA reveal a slight decline in the Free Alongside Ship (FAS) rates, with a 0.39 per cent decrease observed between March 4 and March 11. At the port of Santos, the rate adjusted to BRL 4.5505 (~$0.90) per pound, while at Paranaguá, it settled at BRL 4.5611 (~$0.91) per pound. Internationally, the Cotlook A Index, which tracks cotton prices delivered to the Far East, fell by 0.94 per cent within the same timeframe, CEPEA said in its latest fortnightly report on the Brazilian cotton market.

In the broader economic context, the Brazilian real experienced a 0.57 per cent appreciation against the US dollar from March 4 to March 11, closing at BRL 4.975. This currency dynamic plays a crucial role in influencing the cotton market's export competitiveness.

Agricultural forecasts from Brazilian National Supply Company CONAB suggest a promising future for Brazil's cotton sector, with the national area allocated for cotton cultivation in 2023-24 expected to expand by 16.3 per cent compared to the previous season, reaching a record 1.936 million hectares. Despite a predicted 3.6 per cent decrease in productivity compared to the previous season, the overall production is set to rise by 12.2 per cent, thanks to significant adjustments in Mato Grosso, Brazil's leading cotton-producing state.

Data released by the United States Department of Agriculture (USDA) on March 8 indicates an increase of only 0.1 per cent in the 2023-24 global production compared to the forecast in February, but a decrease of 2.8 per cent compared to the 2022-23 season, totalling 24.593 million tons. Consumption is expected to grow by 0.4 per cent (monthly comparison), reaching 24.591 million tons.

Fibre2Fashion News Desk (KD)

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