Low supply boosts prices in July

Cepea, July 16, 2021 – Cotton prices were moving in early July. Although the harvest has started in Brazil, the cotton supply is low in the domestic market, pushing up values.


Up until the first fortnight of July, circa 10% of the cotton area has been harvested. It is important to mention that there is a delay between the harvest and the supply in the spot market, which depends on both processing and classifying the product. Moreover, a significant share of the production has already been traded, mainly to export. Therefore, the first batches were allocated to accomplish these contracts. Because of that and due to high dollar quotes (which increases the export parity), many sellers are away from trades in the spot market, and those who are operating ask for higher prices.


Purchasers who have immediate needs, in turn, need to pay higher values to close new trades. Between June 30 and July 15, the CEPEA/ESALQ Index for cotton rose by 6.6%, to 5.0007 BRL/pound on July 15. However, at the end of the first fortnight of the month, quotes registered slight decreases.


CONAB – Conab released a report on July 8 indicating that the area may total 1.37 million hectares in 2020/21, 17.9% less compared to the crop before. The productivity is forecast at 1,713 kilos per hectare (-4.9%), which is likely to result in 2.342 million tons, downing 22% compared to the 2019/20 supply.


The domestic consumption may decrease 19.2% compared to the previous, at 715 thousand tons. Due to lower supply and availability, exports may shrink 5.6% compared to those in the 2019/20 season, at roughly 2 million tons. As for ending stocks, Conab projects a 21.4% decrease in relation to the crop before.





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