Contracts and Pepro support domestic market

In 2007, the Brazilian cotton production reached a record, exports increased, prices were more stable over the previous years, anticipated contracts moved at a good pace. However, exports accomplishment and growers' revenue depended on the government intervention.

During the crop period (from June until November), cotton prices averaged 300 points (0.03 real or 0.017 dollar per pound). This small variation was linked to the good number of anticipated contracts settled before the peak of season. According to the Brazilian Commodity Exchange, until June, 65 percent of the crop was already traded through contracts for domestic and international markets.

Even though, prices average was lower over 2006 because of the record production. The National Company for Food Supply (Conab) forecasted the volume produced at 1.52 million tons, increasing 47 percent over the previous crop.

With the aim of guarantee a minimum price for growers, in April and May, the Brazilian government established the Equalization Premium Paid to the Producer (Pepro) auctions. The maximum premium was of 0.7533 reals or 0.3785 dollars per kilo, 37 percent superior to that offered in the 2005/06 crop. The premium value was based on ICE Futures quotations, on the exchange rate and on the difference in relation to the minimum official price (1.35 real or 0.68 dollar per pound).

In general terms, manufactured products trades moved at a good pace, especially in the second semester of 2007, which favour textile mills. Growers, in turn, kept focused basically on accomplishing contracts. In the accumulated of 2007, in nominal terms, the CEPEA/ESALQ Index dropped 4.2 percent in Real, closing at 1.2916 real or 0.7339 dollar per pound on Dec 28th. The annual average was of 1.2642 real or 0.6483 dollar a pound, 4 percent in Real lower over 2006.

According to the Foreign Trade Secretariat (Secex), from January to November, Brazilian cotton exports amounted to 349 thousand tons, volume 29.04 percent higher over the same period 2006.

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