Brazil - Cotton prices resume downing

Center for Advanced Studies on Applied Economics (CEPEA) reported that after increasing for little more than one month, cotton prices resumed dropping in the second week of September, mainly because of the wider gap between export parity and quotes in the domestic market. In previous weeks, while domestic prices were firm, international quotes moved down.

The Brazilian production is significant, which results in high surplus, therefore, domestic prices tend to operate at the minimum of the export parity. Since early August, domestic quotes have been more attractive than international prices. Still, the demand for the Brazilian cotton started to shrink. Importers expect that prices in Brazil will resume downing, influenced by decreases of international prices.

The price drop in the second week of the month was also attributed to the dealers’higher willingness to sell. The CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) decreased 0.77% in the partial of September (August 31–September 14) and closed at 1.6658 real or 0.8275 dollar per pound on Sept. 14.

Overall, most processors were refrained from trading, expecting price drops in the upcoming weeks. Producers, in turn, were trying to remain firm in their bid prices.

According to the USDA, the world production in the 2012/13 season is forecast at 24.8 million tons. Among major producers, only the US will register a supply increase. Brazil might produce 1.3 million tons in the upcoming crop, dropping 30% in relation to the current season.