Cepea, November 5, 2020 – Cotton prices rose sharply in the Brazilian market in October, hitting new nominal records in the series of Cepea, which started in July 1996. In the first fortnight of the month, the exports parity was higher than the prices paid in the domestic market, which led sellers to prioritize deliveries and new deals for exports, keeping supply low in Brazil.
Consequently, the Brazilian purchasers with urgent needs for cotton had to increase bidding prices – in some cases, these agents were willing to buy lower-quality cotton. Thus, in the second fortnight of October, domestic prices surpassed those from exports. Agents from trading companies were present in the market, primarily in the second half of the month, and cotton processors were able to buy the product for the short-term, which increased liquidity.
In this scenario, the CEPEA/ESALQ Index for cotton hit 4.0769 BRL on October 27, the highest nominal level in all Cepea series. On October 30, however, this Index dropped slightly, closing at 4.0559 BRL/pound, still 25.7% up in the month and 50.8% higher in a 10-month period. It is worth to consider that the monthly price rise in October is the highest since August 2010. In late October, quotes were pressed down by purchasers, who were unwilling to increasing bidding prices claiming difficulties to pass on cotton valuations to its by-products.
In October, this Index averaged 3.6486 BRL/pound, 15.23% higher than that in September and 24.18% up compared to that in October/19, in real terms (monthly averages were deflated by the IGP-DI from September/2020). This is also the highest real average since January 2020 (3.6589 BRL/pound).
The dollar closed at 5.748 BRL on October 30, 2.31% up in the month and 43.13% higher in the year. In October, the American currency averaged 5.629 BRL, the second highest, in nominal terms, since 1994, only after that from May 2020.
According to Abrapa (Brazilian Cotton Producers Association), processing of the cotton from the 2019/20 crop reached 75% on October 29, and sales, 84%. As regards the 2020/21 crop, 44% have been sold. It is now evident that, despite the record production, the slow processing pace and the focus on the international market limited the domestic availability of cotton, pushing up quotes in Brazil.