Cepea, September 3, 2020 – In August, cotton sellers were unwilling to lower asking prices in the Brazilian market. Still, new deals were closed in the domestic spot market, due to the needs of cotton processors to replenish inventories – however, in general, only small volumes were sold.
In this context, and as sellers were away from the market, prices increased in Brazil in August. Between July 31 and August 31, the CEPEA/ESALQ Index for cotton rose by a staggering 16%, closing at 3.3110 BRL per pound on August 31. This is the highest rise for a monthly average since January/16, when the Index increased by 16.91%. The average Index in August closed at 3.0949 BRL per pound, 12.2% higher than that in July/20 and 25.47% above that in August/19 – in nominal terms, this is the highest average since September 2018 (3.1887 BRL/pound).
With the reopening of the economy, processors need to gradually replenish cotton inventories, since they usually purchase the raw material according to their needs and when supply is higher in the market. As for sellers, cotton farmers continue to prioritize the accomplishment of term contracts, primarily for exports, since remuneration from shipments has been more attractive. However, the price rises in the Brazilian market narrowed the gap between domestic quotes and the exports parity.
Although the cotton harvesting was fast in Brazil in August, favored by the weather, the amount processed is still low. According to data from Abrapa, until August 27, the harvesting had reached 83.5% of the area in Brazil, while cotton processing was at 25%.
Agents from some processors were not interested in closing new deals, since they are still receiving the product previously purchased and/or because they are consuming their own inventories. Many agents reported an increase in the demand for cotton, which also increased liquidity in the yarn market. Besides, in August, some processors closed deals for delivery in the coming months. However, these agents are still cautious about fastening the production pace, fearing that consumption may not grow that much.
2020/21 BRAZILIAN CROP – According to the first estimates for the 2020/21 season, released by Conab (Brazil’s National Company for Food Supply) on August 25, the area allocated to cotton in Brazil may shrink by 10.5% compared to that in the previous season, to 1.49 million hectares. The Brazilian cotton output should total 2.56 million tons, and consumption, 690 thousand tons, 12.4% and 21.05% up, respectively, in the same comparison. Exports are forecast to total 2.01 million tons (4.69% up compared to that in the 2019/20 season), but ending stocks may decrease by 6.88%, to 1.79 million tons.