International scenario drives sellers away from the market in BR, and domestic prices rise

Cepea, August 16, 2021 – Cotton prices resumed rising in Brazil in the first fortnight of August, influenced by the lower domestic supply, since sellers left the spot market. These agents are aware of both the futures valuations at ICE Futures and the dollar appreciation against the Real – it is worth to mention that, in China, cotton prices (Cotlook A Index) dropped in that period, while the export parity increased, due to the dollar.


Thus, Brazilian cotton farmers became focused on the harvesting and processing of cotton and on the accomplishment of contracts. Many sellers took advantage of the price levels in that period to close new deals for further delivery – to both the domestic and the international markets – for the cotton from the 2021/22 and the 2022/23 seasons. Besides, aware of the higher prices at ICE Futures, agents fixed prices for the contracts that had not been closed yet.


Between July 30 and August 13, the CEPEA/ESALQ Index for cotton increased by 4.6%, closing at 5.1915 BRL/pound on August 13. This is the highest price level registered since May 18, 2021, when the Index closed at 5.1970 BRL/pound, and a slight 0.6% down from the nominal record in the series of Cepea, of 5.2251 BRL/pound, set on March 4, 2021.


According to data from Abrapa (Brazilian Cotton Producers Association), by August 13, the harvesting was near 50% of the total cotton area in Brazil, while cotton processing was at 10% of the expected for the season. Supply was still low, and Brazilian purchasers were buying low volumes, only when they needed to replenish inventories.


EXPORTS – According to data from Secex, in July, Brazil exported 61.4 thousand tons of cotton, 39% less than the volume shipped in June and 20.6% below that from July/20.


CONAB – A report released by Conab (Brazil’s National Company for Food Supply) on August 10 showed a decrease of 0.11% in the estimates for the Brazilian cotton area in the 2020/21 season compared to that reported in July, now forecast at 1.36 million hectares, 18% smaller than that in the previous season. Productivity estimates were revised up by a slight 0.04% compared to that reported in July, to 1,714 kilograms/hectare, but 4.9% down from that in the 2019/20 crop. The Brazilian output is currently estimated at 2.341 million tons, stable compared to that previously reported, but 22% lower than that in the previous season.


Domestic consumption is estimated at 715 thousand tons, and the exports in 2021 are now forecast at 2.1 million tons, 1.2% down from that estimated for the 2019/20 season. Thus, ending stocks in the current season are estimated at 1.29 million tons, 6.9% lower than that reported in July and 26.8% below that last season. If this is confirmed, the inventory/consumption ratio will be the lowest in the last three seasons.




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