Index has been dropping for two months in Brazil

Cepea, August 5 2019 – Despite the low cotton supply, prices are dropping in Brazil, which kept the trading pace slow in the domestic market. Agents point to a delay in the harvesting of the 2018/19 crop – and consequently in cotton processing –, due to the rains in mid-May and the colder weather in some areas from Mato Grosso and Bahia.


Thus, the CEPEA/ESALQ cotton Index, with payment in 8 days, has been dropping since late May. Between June 28 and July 31, the Index decreased 7.7%, closing at 2.5065 BRL per pound on July 31. The price average in July, at 2.6244 BRL per pound, is 6.1% lower than that in June/19.


As for sellers, agents were focused on the harvesting, processing and delivering the product previously purchased through contracts. In general, quotes were previously fixed at higher levels than in the spot market. Some batches from the 2017/18 crop were supplied too, but most of the cotton had lower quality, hampering new deals.


Data from Imea released on July 26 indicated that the harvesting in Mato Grosso has reached 25.36% of the total estimated area (1.072 million hectares).


Purchasers, in turn, entered the spot market for occasional acquisitions to replenish small amounts, bidding lower quotes week by week, aiming to deliver the product previously purchased. Some processing plants continued to work with inventories and claimed to have inventories of byproducts too, being cautious when buying new batches.


Trades for future delivery have been slow in Brazil too. Many of the deals for exports were based on the contracts at the New York Stock Exchange (ICE Futures). In the Brazilian market, however, deals were closed at fixed prices (Real or US dollar) – and/or to be fixed (Index or ICE Futures) – involving the cotton from both the 2018/19 and the 2019/20 seasons.


According to data from the BBM tabulated by Cepea, 74.7% of the 2017/18 Brazilian crop, estimated at 2.005 million tons, may have been marketed until July 30. Of this total, 58.2% were allocated to the domestic market, 31.5%, to the international market, and 10.3%, to flex contracts (exports with an option to the Brazilian market). For the next season, data indicate that at least 36% of the 2018/19 output (estimated by Conab at 2.665 million tons) was traded in that same period, with 46.3% allocated to the domestic market, 35.6%, to exports, and 18.1%, to flex contracts.




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