Good competitiveness attracts growers; area should increase in 2018

Cepea, January 12, 2018 – Among temporary crops, cotton has been one of the most attractive to Brazilian growers. However, to start growing cotton, producers need specific assets, as well as technical knowledge regarding production and trades, leading growers with idle capacity to take better advantages of the ratio revenue/costs.


Cepea data shows that in Mato Grosso, inputs purchases and anticipated cotton sales in 2017 (for delivery in the second semester of 2018) point to revenue 10% higher than costs. However, the scenario is not only positive in Brazil, but also in several other countries.


Expectations for a better scenario in the field have pointed to an increase in the area planted with cotton in Brazil. Despite the delay of first rains, weather has favored summer crops in the main producing regions. Sowing has started in several states, such as Bahia, Minas Gerais and Mato Grosso do Sul. In Mato Grosso, the main Brazilian cotton-producing state, most area has the second crop, with sowing scheduled for January and February.


In the 2017/18 season, the Brazilian harvest is expected to total 1.69 million tons, 9.1% larger than in the previous crop, according to data from Conab (National Company for Food Supply). Besides, there is addition of 395.8 thousand tons of initial inventories in January/18 and 15 thousand tons of importations, leading to 2.1 million tons of cotton available in the Brazilian market. Consumption is forecast at 720 thousand tons for 2018, 4.3% higher than in the previous year. Thus, domestic surplus is estimated at 1.38 million tons, which may be exported.


According to data from Conab, Brazil should export 960 thousand tons of cotton this year, 40% more than in the 2016/17 season. Thus, in December/18, inventories may total almost 421 thousand tons. While exportations may underpin quotes, higher surplus may limit higher price reactions.


Moreover, part of the 2016/17 crop has been sold through contracts (which may be exported in the first semester of 2018), in addition to expectations for recovery of domestic consumption and dollar rises against Real. Exportation parity is expected to remain positive as well, which would favor international sales and reduce cotton availability in the first semester.


Besides, contracts involving batches from the 2017/18 crop have been closed, either for “flex” exportation (with the option for the domestic market) or for delivery in the domestic market, based on contracts from New York, Esalq, and even at fixed prices. According to Cepea calculations, the average in 2017 (until December 28) for the exportation contracts regarding the 2017/18 crop was 0.7493 USD per pound for scheduled shipments between August and February/19.


In the international context, the output from the 2017/18 season (already harvested in the Northern Hemisphere) is estimated at 26.1 million tons, volume 12.6% larger than in the previous crop, according to the USDA. The boost came from larger productions in India, China and the United States. If that is confirmed, this will be the second year of larger production, at 5.2 million tons larger, 24.8% higher than the 2015/16 season.


Global consumption in the 2017/18 season should reach 26.05 million tons, 4.2% up according to the USDA, which would be the highest since 2007/08.


Although production is higher than consumption, the ratio ending stocks/consumption should drop to 73.6%. In 2014/15, it was almost 100%. China, which had more than 60% of inventories, now has 45%. As consumption is growing in that country, inventories account for 100% of demand in a year, against 197% in 2014/15. In this context, prices are expected to be firm in 2018.


Data from BBM (Brazilian Commodity Exchange) tabulated by Cepea indicate that 38% of the Brazilian 2017/18 crop may have been traded until late December/17. Of this total, 35.4% were allocated to the domestic market and 64.6%, to the international market. However, data indicate that 66.2% of the 2016/17 output (1.53 million tons) had been traded until Dec/17, of which 41.7% was traded for exportation and 58.3%, for the domestic market. In the last six crops, 81% of the domestic output was registered at BBM.