Dollar increases favor sales of cotton in Brazil

Center for Advanced Studies on Applied Economics (CEPEA) reported that liquidity in the Brazilian cotton market moved up in late March. Most agents, who were refrained from trading due to ups and downs of quotes, resumed trading because of the valuation of dollar against the real, increasing the export parity, which neared the Index. As for the import parity, data from Conab (National Company for Food Supply) indicates that, for the time being, it is more advantageous to purchase cotton in the domestic market.

In this scenario, in late March, Brazilian cotton growers were even firmer regarding values. Moreover, many producers remained focused on crops. Only some sellers, who were in need to make cash flow, reduced prices–even so, only for small volumes. As for the demand, companies with immediate needs accepted asking prices, but negotiated more days for the term payment.

The CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) downed 0.32% in the accumulated of the month (Feb. 29–March 30), and closed at 1.6237 real or 0.8887 dollar per pound on March 30.

In late March, crops were still in bad condition in the northern region of Minas Gerais because of the dry weather. Players surveyed by Cepea say that they have already lost many crops. In Triângulo Mineiro, rains may benefit crops. In Bahia, the dry weather continued and producers estimate losses of around 30%.

Supply and demand data, released by the USDA on March 9, indicated that the world production may be higher than the demand for the third year in a row. This scenario would increase world stocks to the highest level of the last 11 years. Consequently, prices would be pressed down; but, on the other hand, demand could heat up.

Center for Advanced Studies on Applied Economics (CEPEA) is a research center of the University of São Paulo located at ESALQ in Piracicaba, State of São Paulo.