International cotton price is the lowest in 11 years; in Brazil, quotes continue firm

Cepea, April 2, 2020 – Cotton prices dropped sharply in the international market in March. The first contract at the New York Stock Exchange (ICE Futures) decreased to the lowest level since mid-June/2009, in nominal terms, and the Cotlook A Index dropped to 0.6220 USD per pound late in the month, the lowest since late August/2009. Still, in Brazil, prices continued firm, underpinned by the strong dollar – the American currency was higher than 5.00 BRL along the second fortnight of the month, closing at 5.196 BRL on March 31.

 

Between February 28 and March 30, the exports parity calculated by Cepea, FAS (Free Alongside Ship), at Paranaguá port (PR), decreased by 15.53%, due to the 15.48% drop in the Cotlook A Index, while the US dollar rose a staggering -15.2% against Real. The monthly parity average was 2.8968 BRL per pound (until March 30), a slight 0.03% higher than that in the previous month, but 3.9% higher than that from March/19 (2.7886 BRL per pound). In that same period, the Cotlook A Index dropped 8.65% compared to that in February/2020 and 21.2% compared to that in March/19. In the monthly comparison, the US dollar increased 12.35% against Real, and in the annual comparison, 27%.

 

The Futures traded at ICE Futures were pressed down by the coronavirus outbreak, oil devaluations and lower demand. Besides, demand is weaker in the international market – lower activities at destination ports influenced this context. According to Cepea collaborators, some foreigner purchasers asked to postpone deliveries.

 

BRAZILIAN MARKET – Since agents from the market fear that the measures adopted by the government to prevent covid-19 from spreading out may hamper logistics in Brazil, many textile companies interrupted activities in late March, except for those that supply hospital products. It is worth to mention that, with the closure of stores that sell non-essential goods in several cities, including shopping malls, the demand for cotton and cotton yarn decreased sharply.

 

As regards purchasers, the processors still in operation have been working with stocked cotton – many have reduced the production pace. Most agents continue to postpone deliveries, asking for a longer payment deadline, or even canceling orders. Of the few sellers present in the market, many were unwilling to lower asking prices.

 

In this scenario, deals were timely closed, primarily in the second fortnight of March. It is worth to mention that, until February, agents had high expectations for the sector, based on the fast exports pace.

 

Between February 28 and March 31, the CEPEA/ESALQ cotton Index, with payment in 8 days, decreased by 2.9%, closing at 2.4814 BRL per pound on March 31. The monthly average in March was 2.9183 BRL/pound, 2.3% higher than that in Feb/2020.

 

As regards crops, Cepea collaborators have reported that some cotton farmers continue to make cash flow, primarily from soybean and corn, and also that the crops from the 2019/20 season continue in good conditions.

 

(Cepea-Brazil)

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