Index rises 6% in November, the sharpest increase since May/18

Cepea, December 5, 2019 – As agents are prioritizing deliveries to both the Brazilian and the international markets, and as cotton supply is low in the national spot market, prices increased sharply in November.

 

Between October 31 and November 29, the CEPEA/ESALQ cotton Index, with payment in 8 days, rose 6%. This was the sharpest monthly rise since May/18, when the Index increased a staggering 12%.

 

In the Brazilian spot market, only a few agents were active and small amounts were traded – quality was slightly lower in all batches, though. The pace for early trades was fast, and processors were making stocks for the first semester of 2020. In general, although some purchasers bid lower prices than those asked by sellers, the agents with urgent needs were willing to pay higher prices, mainly for higher quality cotton.

 

INTERNATIONAL MARKET – Sales to the international market were favorable to Brazilian cotton growers in November. This scenario was linked to the sharp US dollar appreciation against Real between Oct. 31 and Nov. 29, by 5.56%, which increased the advantage of exporting against selling the product in the domestic market.

 

Thus, although the average Index in November, at 2.5706 BRL per pound, was 3.04% higher than that from October/19, it was 4.8% lower than the exports parity, which was at 2.7007 BRL per pound FAS (Free Alongside Ship), at Paranaguá port (PR).

 

In dollar, the Index (cash price) averaged 0.6150 USD per pound in November, 17.9% down compared to the Cotlook A Index, at 0.7493 USD per pound, and 4% lower than the first contract at the New York Stock Exchange (ICE Futures), at 0.6406 USD/pound.

 

As exports prices are more attractive, agents closed more deals for shipment to the international market, for both the 2018/19 and the 2019/20 seasons, mainly for delivery in the short-term.

 

COTTON OUTLOOK – According to data released on Nov. 29, the world cotton output in the 2019/20 crop may total 26.25 million tons, 0.92% down compared to that estimated in October (this result was influenced by the United States and Pakistan), but 3.1% higher than that in 2018/19. World consumption is forecast at 25.615 million tons (1.2% up compared to the 2018/19 season).

 

CONAB – According to data from Conab (National Company for Food Supply), the Brazilian cotton area in the 2019/20 crop is forecast at 1.647 million hectares, 0.58% larger than that previously reported and 1.8% larger than that in the 2018/19 season. Although the average productivity is predicted to decrease 1.6% in the 2019/20 crop (to 1,658 kg/hectare), expectations for the Brazilian output were revised up by 0.54% compared to that forecast in Oct/19, to 2.73 million tons (0.2% up compared to that in 2018/19).

 

With a larger area allocated to cotton, Mato Grosso should sow 1.101 million hectares, 0.78% up compared to that previously estimated and 0.8% higher than that in 2018/19. The output from Mato Grosso was revised up by 0.77% compared to that previously estimated, to 1.81 million tons in the 2019/20 crop (-0.4% compared to that in the 2018/19 season), while the average productivity should decrease 1.1% (1,643 kg/hectare) compared to the previous. In Bahia, the area is forecast at 350 thousand hectares, 5.4% larger than that in 2018/19. In the same comparison, even if the average productivity decreases 3.4%, to 1,738 kilos per hectare, the volume produced should be 1.8% higher, at 608.4 thousand tons.

 

(Cepea-Brazil)

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