Prices remain stable in Brazil and are more than 3% below the exports parity

Cepea, October 1 2019 – Cotton prices remained stable in the Brazilian market in September, while the exports parity increased. Thus, the CEPEA/ESALQ cotton Index, with payment in 8 days, was 3.1% lower than the exports parity during the month, the widest gap since January 2016. On September 30, the Index closed at 2.4751 BRL per pound, a slight 0.2% up compared to that on August 30.


In light of the higher exports parity, some deals for exports were closed, involving cotton from the 2018/19 and the 2019/20 seasons.


Cotton prices oscillated in the Brazilian market in September, but the monthly average remained stable compared to that in August. Before that, the CEPEA/ESALQ cotton Index, with payment in 8 days, had dropped for four consecutive months.


Quotes were underpinned by the unwillingness of sellers to lower asking prices – these agents stayed away from the spot market most of the month, delivering the product previously purchased. This attitude was based on the higher price levels in the international market, higher exports parity and the low availability of high quality cotton. In general, Brazilian cotton growers were focused on the end of the 2018/19 crop harvesting as well as on cotton processing, and many of them claim to have already traded most of the output.


As for purchasers, many processing plants were using the cotton stocked, while others worked with the product received through contracts. Still, some plants needed to purchase small volumes for prompt delivery, despite the lower quality observed for some batches. Besides, processors were trying to buy cotton for next year (from the 2019/20 crop).


The average Index in September, at 2.4582 BRL per pound, was 0.34% lower than that from August/19 and a steep 24.77% down compared to that from September/18, in real terms (values were deflated by the IGP-DI from August/19).


According to data from the BBM (Brazilian Commodity Exchange) tabulated by Cepea, at least 42.1% of the 2018/19 Brazilian cotton crop (estimated by Conab at 2.691 million tons) may have been traded until September 30. Of this total, 43.7% were allocated to the domestic market, 41%, to the international market, and 15.2%, to flex contracts (exports with an option to the domestic market).


In Mato Grosso (MT), according to Imea, data relased on Sept. 9 indicate that 80.54% of the output from the state, estimated at 1.846 million tons, may have been traded. According to the BBM, 33.1% of the output from MT may have been traded until Sept. 30.


INTERNATIONAL MARKET – In a report released on September 12, the USDA revised down – by 0.1% compared to that reported in August – estimates for the world output and consumption in the 2018/19 crop, to 25.9 million tons (-3.8% compared to the 2017/18 season) and to 26.2 million tons (-1.9% compared to the previous crop), respectively. World inventories in the 2018/19 season were estimated at 17.59 million tons, 0.7% up compared to that reported in August, but still 0.2% down compared to that in the previous season.


Global imports should total 9.25 million tons, 3.3% higher than the 2017/18 crop and 1.6% up compared to that reported in August. Exports, in turn, are estimated at 8.96 million tons, 0.8% up compared to that reported in August, but 0.6% lower than that in the previous season.


For the 2019/20 season, the USDA estimates the output to total 27.19 million tons, 4.9% larger than the previous, boosted by production in India, the United States and Pakistan. Brazil, however, should produce 6.2% less cotton. World consumption may grow by 1.1%, to 26.5 million tons. Trades should total 9.42 million tons, with imports 1.8% higher, and exports, 5.3% higher than that in the 2018/19 season.


World inventories were estimated at 18.2 million tons, 3.6% up compared to the 2018/19 crop, according to the USDA.




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