Sellers' firm stance underpin cotton prices in the Brazilian market

Cepea, June 2, 2020 – Brazilian cotton sellers were aware of the higher remuneration from the international market in May and, thus, were unwilling to lower asking prices in the national spot market, which underpinned cotton quotes in the second fortnight of the month. However, purchasers’ interest continued low, and agents from processors were bidding lower prices for the product, hampering deals in the Brazilian market.

 

Some traders reported deliveries of the cotton previously purchased, but agents claimed that the sales pace for cotton yarn and finished products continued slow in Brazil, keeping inventories high and hampering new cotton purchases.

 

With the coronavirus pandemic, cotton consumption, production and sales decreased in many countries, and, thus, some international purchasers postponed Brazilian deliveries. Still, new deals were closed for the 2018/19, 2019/20 and 2020/21 crops.

 

Between April 30 and May 29, the CEPEA/ESALQ cotton Index, with payment in 8 days, rose by 1.6%, closing at 2.7065 BRL per pound on May 29. The monthly average, at 2.6482BRL per pound, is 4.4% lower than that in April/2020.

 

Agents from some processors that were interested in closing deals were trying to extend the payment deadline. This is linked to the low liquidity of these products, which was hampering cash flow. However, some sellers feared non-payment and, thus, were unwilling to lower asking prices and to extend payment deadline.

 

USDA – Data released by the USDA on May 12 indicated that the world 2019/20 cotton production should total 26.5 million tons, a slight 0.8% up compared to the previous. On the other hand, consumption was revised down by 5.1% compared to that previously reported and by 12.7% compared to that in 2018/19, to 24.08 million tons.

 

Brazil should consume 675 tons of cotton in the 2019/20 crop, 6% down compared to that reported in April, but 8.8% higher than that last crop. Thus, world inventories in the 2019/20 season are estimated at 12.16 million tons, 21% up compared to that in the previous season. World trades are forecast at 8.8 million tons, with imports 7.4% lower and exports 2.6% lower than in the previous season.

 

For the 2020/21 crop, the USDA estimates production at 25.9 million tons, 3% lower than that in the previous season – pressure comes from the four top cotton-producing countries in the world – the output from Brazil should be 9.1% lower.

 

World consumption in 2020/21 may grow by 10.9%, to 25.36 million tons, boosted primarily by China (+11.8%), India (+14.7%) and Pakistan (+16.6%). The USDA estimates this increase as the uncertainties about the covid-19 pandemic decrease.

 

On the other hand, world inventories are estimated at 21.65 million tons, 2.3% higher than that in the 2019/20crop, the highest in six crops, although Chinese inventories may decrease by 5.9% and Brazilian inventories, by 1.3%. Trades may increase to 9.3 million tons (+8.9% imports and +7.2% exports).

 

(Cepea-Brazil)

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