Owing to favourable weather in the main producing regions, area planted with cotton in Brazil is expected to increase in 2018, Center for Advanced Studies on Applied Economics (Cepea) said in its latest fortnightly report. In Mato Grosso, the main cotton producing state, inputs costs and anticipated sales point to revenue 10 per cent higher than costs.
“Despite the delay of first rains, weather has favoured summer crops in the main producing regions. Sowing has started in several states, such as Bahia, Minas Gerais and Mato Grosso do Sul. In Mato Grosso, most area has the second crop, with sowing scheduled for January and February,” the Cepea report said.
In the 2017-18 season, the Brazilian harvest is expected to total 1.69 million tons, 9.1 per cent more than the previous crop, according to data from Conab (National Company for Food Supply). Besides, there is addition of 395,800 tons of initial inventories in January 2018 and 15,000 tons of imports, leading to 2.1 million tons of cotton available in the Brazilian market. Consumption is forecast at 720,000 tons for 2018, 4.3 per cent higher than the previous year. Thus, domestic surplus is estimated at 1.38 million tons, which may be exported.
According to Conab estimates, Brazil is likely to export 960,000 tons of cotton this year, 40 per cent more than the quantity exported in the 2016-17 season. Thus, in December 2018, inventories may total almost 421,000 tons. “While exportations may underpin quotes, higher surplus may limit higher price reactions,” the report said.
In addition to expectations for recovery of domestic consumption and rise in value of US dollar against Brazilian real, it should also be considered that some part of the 2016-17 crop has been sold through contracts which may be exported in the first semester of 2018. This would lead to reduced cotton availability in the first semester.
Meanwhile, data from Brazilian Commodity Exchange BBM indicate that 38 per cent of the 2017-18 Brazilian crop may have been traded until late December 2017. Of this total, 35.4 per cent were allocated to the domestic market and 64.6 per cent to the international market. In comparison, 66.2 per cent of the 2016-17 output of 1.53 million tons had been traded until December 2017, of which 41.7 per cent was traded for exports and 58.3 per cent for the domestic market.