Low stocks should keep quotes firm in 2011

    2011 looks promising for cotton growers in Brazil and in the world. Ending stocks are low and although supply surpassed consumption in the 2010/11 season, this scenario will not be enough to bring the ratio stock/consumption to a comfortable level. In this context, prices (domestic and international markets) are expected to remain firm. As a result, producers should keep increasing the planted area for the 2011/12 crop.

On balance, high prices in 2010 surprised agents; however, many Brazilian sellers did not take advantage of these levels, since part of the production of the 2009/10 season had been traded previously. For the 2010/11 crop, Brazilian producers are optimistic and will try to take advantage of high prices by increasing planted area and advancing trades.

Quotes soared in the first days of 2011, registering the highest daily variation since data from CEPEA - Center for Advanced Studies on Applied Economics began, in 1996. On Jan. 5, the CEPEA/ESALQ Index for cotton type 41-4 (delivered in São Paulo city, payment in 8 days) picked up 6.21 percent, closing at 3.1113 reais or 1.8586 dollar per pound. Between December 30 and January 14, the CEPEA/ESALQ Index for cotton picked up 16.81 percent, to close at 3.4048 Real or 2.0194 dollars per pound on Jan. 14.

In the world market, the USDA forecasts the 2010/11 season to increase roughly 14 percent compared, reaching 25.2 million tons. However, production in China and Pakistan (two major producers) should shrink.

Regarding consumption, agents expect that the higher prices will lead to the replacement of raw material, pushing down the demand for cotton. Among major world consumers, China could reduce demand in 6 percent and Pakistan, in 5.5 percent, according do data from USDA.

The Icac (International Cotton Advisory Committee) estimates that world consumption in the 2010/11 crop should be stable, at 24.7 million tons. Regarding world production, Icac forecasts 25.14 million tons, against 21.6 million in the previous season. This could contribute to increase ending stocks, which might reach 9.4 million tons. Even so, the ratio stock/consumption should go from 36 to 38 percent, still below the average of the last ten years.

In Brazil, Conab (National Company for Food Supply) estimates that the planted area may increase 45.3 percent compared to the 2009/10 crop, reaching 1.2 million hectare. Production should be 53.7 percent higher, totaling 1.835 million tons, a record. Yield will probably rise 5.7 percent than that verified in the previous season, reaching 1.511 kilo per hectare.

Data from BBM (Brazilian Commodity Exchange) indicate that, until Dec. 30, roughly 88 percent of the 2009/10 season had already been traded – 60 percent was allocated to the domestic market and 40 percent, to exports. For the 2010/11 crop, around 766 thousand tons have already been traded (66 percent to exports and 34, to the domestic market).