According to CEPEA, cotton quotes have dropped significantly in the Brazilian market in 2014, especially after February and are lower than the government floor price since mid July.
The CEPEA/ESALQ Index for cotton type 41-4 has dropped 27.62 per cent till December 28 as against that observed in 2013, when the Index rose 33.84 per cent.
This is a result of significant increase of 32 per cent in Brazilian cotton production in 2013/14 compared to the season before, along with a quality decrease in this crop, says Conab.
At the beginning of the year, the low domestic demand and differences between bidding and asking prices, limited cotton trades.
Despite the fact that some cotton growers refrained from making new deals, traders were more flexible regarding sales prices, mainly to keep cash flows going.
Cotton producers were however more focused on agricultural practices, concerned about weather conditions and possible impacts on the crops’ yield.
Trading companies were more active in the domestic market due to consecutive decreases of international prices in July.
CEPEA partners have observed that temperature oscillations and rains in July were the defining aspects for the delay in harvesting with rains and more so cotton quality.
Cotton dealers were operating more in the market, looking for batches to accomplish contracts. Industries that need to purchase bought small volumes, expecting new price drops.
In most part of September, players refrained from new trades, expecting Pepro (Equalization Premium Paid to the Producer and/or Cooperative) auctions.
Due to cotton prices slipping below the government price floor of BRL 1.6602 pound since July 2014, producers continued expecting quotes to be stable or to increase.
Even with the auction, quotes remained weak and trading companies focused on the dollar valuation against the real and resumed trading cotton mainly in the international market.
In the last quarter of the year, quotes oscillated a little and the Index remained at around 1.65 BRL per pound.
Despite the interest in purchasing from industries, frequent complaints about the low quality of the product brought difficulties in signing new trades.
According to Secex, in 2014, shipments were 21 per cent higher than those seen in 2013. (AR)
