Index is 19.8% lower than the exports parity

Cepea, May 20, 2020 – Brazilian cotton exports continue firm and, in the first fortnight of May, were remunerating more than sales in the domestic market were. However, the domestic cotton surplus is still high, and, thus, Brazil needs to export even higher volumes in the coming months. It is worth to mention that, soon, a new crop should arrive at the market, amid a slow production pace at processors since March (because of the effects of the coronavirus pandemic on consumption). Thus, the gap between prices in Brazil and in the international market is widening.


In this scenario, while the exports parity was firm, underpinned by international cotton prices and the exchange rate, quotes dropped in Brazil.


Between April 30 and May 15, the dollar rose by 7% against Real – a record nominal level was hit on May 13 (5.915 BRL). The exports parity calculated by Cepea, FAS (Free Alongside Ship), at Paranaguá port (PR), increased by 8.31% in that same period, and the Cotlook A Index, by 1%, closing at 0.6590 USD per pound on May 15.


According to data from Secex, Brazilian cotton exports totaled 90.6 thousand tons in April/2020, the highest ever shipped in a month of April. Among the top destinations for the Brazilian product were Vietnam, Turkey, China, Bangladesh and Indonesia, which, altogether, account for 77% of the total volume exported.


In Brazil, purchasers were away from the market. Most processors halted or reduced production. Thus, deals in the spot market were occasional, only to meet the demands for the short-term. It is worth to consider that the product previously purchased through term contracts in previous months had not been delivered yet.


According to data from IBGE, between February and March (most recent data available), industrial activity (seasonally adjusted) in the clothing and accessories sector dropped by a steep 37.8%, and for textile products, by 20%.


Between April 30 and May 15, the CEPEA/ESALQ cotton Index, with payment in 8 days, dropped by 1.86%, closing at 2.6132 BRL per pound on May 15. The monthly average in the first half of May is 19.8% lower than the exports parity, which is a record gap considering the historical series, which started on July 16, 2001 – on May 7, the gap was at 18.19%. This context encouraged deals for exports for the cotton from three crops: 2018/19, 2019/20 and 2020/21.


CONAB – In a report released on May 12, Conab (Brazil’s National Company for Food Supply) revised down the area allocated to cotton in Brazil in the 2019/20 season, compared to that previously reported, but compared to that last season, the cotton area was revised up by 3.3%, to 1.67 million hectares. Productivity, in turn, was revised up by 0.3% compared to that previously reported and to that last season, to 1.723 kg/ha. Thus, the output was revised down by a slight 0.05% compared to that reported in April, however, it may be 3.6% higher than that in the 2018/19 crop, totaling 2.88 million tons.


In Mato Grosso, area estimates were kept stable compared to that last crop, at 1.17 million hectare, productivity, at 1.716kg/ha, and the output, at 2 million tons. In Bahia, the cotton area was kept stable too, at 315.1 thousand tons, but productivity and production were revised up by 1.59% (both) in May, to 1.788 kg/ha and to 563.4 thousand tons. Thus, the output from Bahia in the 2019/20 season should be 5.7% lower than the previous.




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