Center for Advanced Studies on Applied Economics (CEPEA) reports that cotton prices resumed increasing in Brazil, due to the slight demand increase from the industry and the impact of the exchange rate on players' expectations.
Dollar quotes are higher – the highest value since 2009 (2.00 real) was reached on May 15 –, therefore, sellers are firmer and reluctant to accept bids. Moreover, for the time being, it is more advantageous to close contracts to export than to trade in the Brazilian market. It is worth noting that producers who still have soybean prefer to trade the stocked soybean.
Meanwhile, the industry shows higher interest to purchase cotton immediately, once the exchange rate remains firm. Consequently, they resumed purchasing and are accepting asking prices. Liquidity was higher in the second week of May; however, trades involved only the necessary for the short-term demand, mainly because of difficulties to find high quality cotton.
The CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) increased 1.95% in the partial of May (April 30 – May 15) and closed at 1.6279 real or 0.8139 dollar per pound on May 15.
In Bahia, in early May, some producers were refrained to close new trades due to the dry weather which has affected crops and may result in yield loss. Moreover, the weather impact might push quotes up. Players surveyed by Cepea say that the crop failure may surpass 25% in some cases.
In a report released on May 3 by Aiba (Association of Bahian Farmers and Irrigators), the average loss is forecast to be 10% in the 2011/12 crop. The planted area in the region totaled 386 thousand hectares, and the production is projected to amount 562 thousand tons – already considering the forecast loss.
Conab (National Company for Food Supply) released a report on Brazil's supply and demand on May 10. The planted area in the 2011/12 crop is 1.39 million hectares, 0.6% lower than the previous (1.4 millions). The yield may be 1,402 kilos per hectare, 0.1% more than the crop before, and the production might total 1.95 million tons, 0.5% higher.
Center for Advanced Studies on Applied Economics (CEPEA) is a research center of the University of São Paulo located at ESALQ in Piracicaba, State of São Paulo.
Center for Advanced Studies on Applied Economics (CEPEA)