Cepea, August 3, 2021 – Deals were sporadic in the Brazilian market of cotton in late July, only to meet prompt demands from processing plants and/or traders that purchase the product to accomplish contracts. Many agents were focused on the progress of both cotton harvesting and processing, majorly because they have already sold part of the output through term contracts. Thus, these agents were prioritizing the accomplishment of these contracts late in the month. Besides, concerns about the quality and volume of the cotton from the 2020/21 season were slowing down sales even more.
As regards sellers, Brazilian cotton farmers continued unwilling to lower asking prices. In general, the volume available in the spot market (which was majorly from Bahia, where activities have most advanced) was low.
Agents from some processing plants were putting pressure on cotton values, since, according to Cepea collaborators, besides the concerns about passing on cotton prices to the by-products, sales were lower than the expected. Other processors were working with the product stocked.
Thus, some sellers had to lower asking prices in order to close deals. Between June 30 and July 30, the CEPEA/ESALQ Index for cotton rose by 5.8%, closing at 4.9617 BRL/pound on July 30. The average of the Index in July closed at 4.9850 BRL/pound, 2% higher than that in June.
Despite the strong dollar and the high prices in the international market, sales in the Brazilian market continued attractive to sellers in July. Thus, domestic prices have been higher than the export parity since November 2020, leading some sellers to allocate their batches to the domestic market.
In May/21, the average of the CEPEA/ESALQ Index set a nominal record, closing at 5.1563 BRL/pound, 23% up from the export parity. This scenario was linked to low cotton supply, due to the fast exports pace, the accomplishment of contracts to Brazilian processors, and because the cotton supply from the 2019/20 season was beginning to decrease, besides the forecast for a delay in the 2020/21 season.
SALES – According to data from the BBM (Brazilian Commodity Exchange) tabulated by Cepea, at least 31.7% of the 2020/21 Brazilian crop may have been sold until July 27. It is important to consider that, on the average of the last five crops, 68% had been sold until the same date.
In Mato Grosso, 99.94% of the output from the 2019/20 season and 78.02% of that from next crop have been sold, according to data from Imea (Institute of Agricultural Economics from Mato Grosso) released on July 12. Sales of the product from the 2020/21 season have been slightly lower than that in the same period of the 2019/20 season (79.16%), but higher than the average of the last five years, of 74.95%.
HARVESTING – According to data from Abrapa (Brazilian Cotton Producers Association), until July 22, 24% of the total cotton area in Brazil (2020/21 season) had been harvested. Mato Grosso, the number on producer in Brazil, has harvested 17% of the area, and Bahia, 37%.