Brazilian cotton sector registers records in 2020

Cepea, January 4, 2021 – Both production and exports hit a record in 2020. Attractive prices in previous years underpinned the domestic production, and players were focused on international sales. In the first semester, cotton exports were limited by the interruption of industrial operations due to the pandemic; however, activities returned in the second semester in Brazil and in the world, increasing international trades and pushing up domestic quotes, which hit the highest nominal levels of Cepea historical series.


Up to the first quarter of 2020, shipments were firm, hitting a monthly record in January. Nonetheless, due to the covid-19, exports and domestic consumption were practically interrupted. In order to contain the virus, a set of non-essential activities were paralyzed in late March, leading the industry to stop and/or reduce production. In this scenario, new purchases and exports were postponed, and many players required more days to pay – some deals were even canceled. In addition to that, international demand decreased too.


As a result, in April, cotton prices tumbled in both the domestic and the international markets, reducing the pace of trades also in May. The share of the industry that produces hospital items using cotton as a raw material was closing many deals in that period, but that represents only a small part of the market. In some periods, players from the industry performed changes in the production line to meet specific demands during the pandemic, such as the production of cloth face masks.


In that period, the export parity was atypically higher than domestic prices, indicating the attractiveness of international sales. This scenario was attributed to high dollar quotes – on May 13, the exchange rate hit 5.915 BRL, the highest nominal value since the beginning of Plano Real, in 1994. On the same day, the Index registered the lowest value of the year, being 23% below the export parity (the highest negative gap since July 16, 2001).


From June onwards, the record cotton crop started to be harvested more significantly in Brazil. However, processing activities were slower because there was still a high surplus in the domestic market. Conab data indicates that the 2019/20 Brazilian production totaled 3 million tons, 8% more compared to the previous and the fourth consecutive season of advances. The record production is a result of increases of 3% in area (1.67 million hectares) and 4.9% in productivity (1,802 kilos per hectare) in relation to the 2018/19 season.


In the spot market, after decreasing 15.4% in 2019, due to the high surplus, the CEPEA/ESALQ Index for cotton rose 41.7% in 2020, closing at 3.8092 BRL/pound on December 28. In the first semester, the Index rose only 0.8%, and in the second, a staggering 40.5%. From January to the fourth week of December, Brazil shipped 2.05 million tons of cotton, 28% up in relation to 2019 and a record.




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