Demand for Brazilian cotton increases (Brazil)

Center for Advanced Studies on Applied Economics (CEPEA) reported that cotton trades continued moving at a slow pace in late July; however, the demand started to pick up as agents rebound their inventories. As for supply, producers were prioritizing the accomplishment of contracts, mainly to export and, in the meantime, the product available in the Brazilian market was basically from the 2010/11 crop.

At the end of the month, producers were focused on harvesting activities, which were slower than expected. Cotton ginning remained at the same pace, and, therefore, sellers were only accomplishing contracts. Trades involving the 2011/12 crop at BBM (Brazilian Commodity Exchange) indicate that roughly 45% of the production has already been sold. Of this volume, only 22% accounts for domestic purchasers (circa 20% of domestic demand).

These figures indicate that sales to export this year are more significant considering the beginning of harvest. Data indicate that companies operating in the Brazilian market still need to purchase a higher share of the product to satisfy their demands. These companies expect more significant price drops, which will be driven by the pace of exports.

Until late July, producers were selling only batches of the 2010/11 season, accepting purchasers’ demand. Even so, it was difficult to sell those batches in that period, because of the quality of cotton that, in most cases, does not meet purchasers’ requirements.

At the end of the month, most processors were willing to buy cotton for immediate needs, since companies which have closed anticipated contracts faced delays and were low on inventories. Other purchasers, in turn, expecting price drops when the harvesting advances in Mato Grosso, continued out of the market.

In July, the CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) upped 2.34% and closed at 1.5830 real or 0.7733 dollar per pound on July 31.