Cepea, May 16, 2018 – Cotton prices continue on the rise in the Brazilian market, boosted by low supply. Between April 30 and May 15, the CEPEA/ESALQ cotton Index rose 7.1%, closing at 3.5758 BRL (0.9764 USD) on May 15 – the highest daily price, in nominal terms, since April 14, 2011 (3.6246 BRL).
Sellers made only a few batches available in the spot market in that period, asking higher prices than bids, which hampered trades. Sellers were not flexible regarding prices because of the good trading pace for the 2016/17 season (mainly exportations), Real drops in the last two months (which disfavors importations) and uncertainties regarding the entry of the new crop in the spot market, which will depend on the end of the crops cycle.
As for purchasers, many of them bought small volumes to meet urgent demands. Others were out of the market, working with the cotton previously purchased and/or decreasing production. Processors claim difficulty to pass on cotton price rises to by-products, keeping expectations for price drops as the new crop harvesting advances.
According to Cepea surveys, some trades involving the cotton from the 2017/18 season have been closed, but, in general, agents are focused on the 2017/18 crops development.
CONAB – The Brazilian cotton output may total 1.942 million tons in the 2017/18 season, 4.3% up compared to that estimated in April/18 and 27% larger than the 2016/17 season – that would also be the highest since 2011/12. Area is forecast at 1.175 million hectares (+25.2% compared to the 2016/17 season), and productivity, at 1,652 kilos per hectare (+1.4%).
In Mato Grosso (MT), Conab (National Company for Food Supply) indicates that crops are developing well. From April to May, the area forecast to be sown increased by 4.2% in that state, and compared to the previous crop, by 23.9%, to 777.8 thousand hectares. In this scenario, production in MT should total 1.275 million tons, 26.1% larger than the 2016/17 crop, although productivity is estimated to increase by only 1.8%.
In Bahia, the second biggest cotton-producing state in Brazil, Conab revised up the area in the 2017/18 season to 265.1 thousand tons (+31.5% compared to the previous forecast). Production is estimated at 451.8 thousand tons, a staggering 30.5% up. In April, Conab forecast a 6.8% productivity decrease in Bahia. In May, however, productivity is forecast to decrease by only 0.7% compared to the 2016/17 season, at 1,704 kilos per hectare.
INTERNATIONAL MARKET – In a report released on May 10, the USDA revised up the global estimates for the 2017/18 season, to 26.657 million tons, 14.8% up compared to the previous season (due to the biggest cotton-producing countries, such as India, China, the United States and Brazil). Consumption was revised up as well, to 26.289 million tons, 5.2% higher than in the 2016/17 crop. Despite the sharp inventory decrease in China, the global 2017/18 stock may increase by 1.5%, reaching 19.2 million tons. Global trades may total 8.5 million tons, 5.4% higher than in 2016/17. Bangladesh, Vietnam and China continue as the main importers, and the United States, the biggest cotton-exporting country in the world.
In the first estimates for the 2018/19 season, the USDA forecast global inventories at 18.2 million tons, 5% lower than in the previous season – due to lower inventories in China. Demand from India, Bangladesh, Turkey and Vietnam is supposed to increase. Global consumption may be 3.9% higher, at 27.3 million tons (that would be the seventh consecutive increase).
Global trades in the 2018/19 season may increase for the fourth consecutive season, to 8.95 million tons, 4.8% up compared to the previous crop (USDA). The United States should be the main cotton supplier, followed by Brazil (+14.33%). Importations from Bangladesh, Vietnam and China should increase the most. As for the global cotton output, estimates are for 26.386 million tons, 1% down compared to the 2017/18 season – with lower production in China and the United States, which are not offset by the larger output in Brazil and Pakistan.
EXPORTATION AND IMPORTATION – Brazilian cotton shipments decreased for the sixth consecutive month in April. From March to April, exportations decreased by 39.3%, and compared to April/17, shipments were 7.3% lower, at 28.6 thousand tons. Importations, in turn, totaled 1.533 thousand tons in April/18, the largest volume since July/17, 11.3% up compared to March/18, but 68.2% down compared to April/17.