Brazilian cotton exports may reduce sharply

Center for Advanced Studies on Applied Economics (CEPEA) reported that Conab’s (National Company for Food Supply) forecast that the cotton area in Brazil might shrink between 20.2% and 27.4% has led producers to refrain from closing new trades.

According to the Company, the area may reduce to between 1.012 and 1.112 million hectares, which would result in a production between 1.49 and 1.63 million tons, 21.2% and 13.4% lower, respectively, compared to the crop before. Brazilian inventories at the end of the 2012/13 season might remain at the average observed in the last two years. Exports, in turn, might decrease significantly (Conab data) because of smaller domestic surplus.

Conab has indicated that the area decrease is attributed to price drops in the international and domestic markets, the unsatisfactory exchange rate, the lower profitability compared to other activities, such as the soybean, and the sharp increase of production costs.

Players surveyed by Cepea confirm the decrease for cotton planted area. The soybean planted area, in turn, may increase this season.

The lower supply for the next crop and demand decrease led prices to decrease in early October. The CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, 8-day payment) moved down 2.76% in the partial of October (September 28–October 15), averaging 1.5352 real (0.7547 dollar) per pound on Oct. 15.

In general, producers expect the market to react at this off-season beginning. Therefore, they prefer to postpone trades. Liquidity remained low at the beginning of October, and trades involved only small amounts. Some companies continued to wait for prices to keep the downward trend and were out of the market, pressing down values.