Liquidity increases slightly in June; prices stabilize

Cepea, July 2, 2020 – Cotton trades increased slightly in June compared to that in May and in April. Along the month, the deliveries that had been postponed occurred, and deals for the new crop were closed.


Purchasers continued to press down quotes, trying to extend the payment deadline and searching for higher quality cotton. Sellers, on the other hand, were focused on crops, expecting to accomplish the contracts previously closed. It is worth to mention that anticipated contracts should generate higher revenue than current sales.


In this scenario, prices remained stable in June. The CEPEA/ESALQ cotton Index, with payment in 8 days, oscillated between 2.6923 BRL per pound and 2.7271 BRL per pound during the month, meaning that the lowest price level was only 1.3% lower than the highest. The average price for cotton in June closed at 2.7102 BRL/pound, 2.3% higher than that in May, but 3% lower than that in June/19 and 7.1% down compared to the average in March/20, when the covid-19 pandemic started to step up in Brazil – all in nominal terms.


In dollar, the cotton Index is at 0.5212 USD/pound in June, 23% lower than the Cotlook A Index and 14.3% below the first contract at ICE Futures (New York Stock Exchange). This points to the devaluations of the Brazilian product in the international market, due to the high surplus still available and the arrival of a new Brazilian crop, which is almost a record.


International demand and the world cotton consumption have been changing sharply because of the covid-19 pandemic. In early 2020, estimates from the USDA indicated cotton consumption in the 2019/20 season (until July/2020) at 26.2 million tons, similar to that in the two previous crops. Since then, all reports from the USDA have revised down consumption estimates, by 1% in February, 0.7% in March, 6.4% in April, 5.1% in May, and 2.2% in June. Thus, compared to that forecast in January/2020, current estimates are 14.6% lower. For the 2020/21 season, demand is expected to partially recover.




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