Index rises by almost 8% in August and sets a nominal record

Cepea, September 2nd, 2021 – The demand for cotton was slightly higher in the Brazilian market in August, increasing liquidity. This scenario added to the current low cotton supply in the national spot market and international valuations for the product pushed up domestic prices during the month.


Between July 30 and August 31, the CEPEA/ESALQ Index for cotton increased by 7.9%, closing at 5.3540 BRL/pound on August 31 – on the previous day, August 30, this Index closed at 5.4748 BRL/pound, a new nominal record in the series of Cepea, which began in 1996. The monthly average in August closed at 5.2579 BRL/pound, 5.74% higher than that in July/21.


In general, Brazilian cotton farmers were focused on the harvesting, cotton processing and the accomplishment of contracts. The sellers interested in closing deals continued to increase asking prices along the month, based on the lower output in the 2020/21 season, the high volume already traded and lower inventories. In the last week of the month, however, agents from trading companies were more interested in closing deals in the domestic market, where prices have been more attractive than export values.


As regards purchasers, some of them needed cotton for prompt delivery, while others were not interested in buying the product late in the month, expecting values to decrease as cotton processing advances and contracts are closed. Some processing plants reported higher sales in August, but these agents were still cautious about purchasing high volumes, fearing difficulties to pass on production costs.


2020/21 SEASON – Abrapa (Brazilian Cotton Producers Association) estimates that, until August 26, cotton harvesting had reached 78% of the area in Brazil, and cotton processing, 26%. In Mato Grosso and in Bahia, processing has reached 18% and 40% of the output, respectively.


ESTIMATES FOR THE 2021/22 SEASON – The first crop estimates from Conab for the 2021/22 season points to an area of 1.548 million hectares in Brazil, 13.4% larger than that in 2020/21, influenced by the current high prices in the international market, the strong dollar compared to the Real, high profitability of cotton farming in Brazil and the volume sold earlier. It is important to consider that, according to Conab, the high profitability of corn crops may constrain increases in the cotton area in Brazil.


Productivity is forecast at 1,750 kilograms per hectare, 2.1% up from that in the 2020/21 season. Thus, the Brazilian output is expected to grow by 15.8% compared to that in the previous season, to 2.71 million tons in 2021/22.


Domestic consumption is supposed to increase from 715 thousand tons to 760 thousand tons in the 2021/22 season (+6.3%). On the other hand, Brazilian cotton exports are forecast at 2.03 million tons, 3.3% down from that estimated for 2020/21. Thus, ending stocks are estimated at 1.045 million tons, 19.1% lower than that in the previous season. Thus, the inventory/consumption ratio in 2021 is forecast at 181%, possibly falling to 137% in 2022, the lowest in four years.




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