Source: ccfgroup.com

August 13, 2019

Brazilian cotton output is expected to rise largely, while in the meantime, global cotton consumption continues to weaken, so the oversupplied situation of Brazilian cotton during the harvest period is more obvious, and there is still downward space for cotton prices later. However, the trade friction makes China cotton imports from Brazil increase evidently. Besides, the Brazilian cotton has obvious price edge among cleared foreign cotton.

1. Obvious supply glut of Brazilian cotton
According to the data released by CONAB in July, 2018/19 Brazilian cotton output may reach 2.665 million tons, up by 32.9% year on year, to hit a historical high. Exports may move up by 60.3% to 1.5 million tons, above 1 million tons for the first time. Domestic consumption is likely to rise by 2.9% to 0.7 million tons. Therefore, ending stocks may rise by 70.7% to 1.135 million tons, for the first time to be above 1 million tons since 2011.

The large increase of cotton output makes the supply glut more obvious. Compared with the data released in June, the consumption and exports are revised lower somewhat, leading to higher ending stocks. In early Aug, global stock and commodity market turns bearish, and CONAB is likely to revise lower the consumption and exports in Aug. Under the continual weakness of global cotton textile industrial chain, the supply glut of Brazilian cotton is more obvious with higher cotton output.

Brazilian cotton supply and demand (CONAB, unit: KT)

Date

Beginning stock

Output

Import

Total supply

Consumption

Export

Ending stock

2011/12

521.7

1,893.3

3.5

2,418.5

895.2

1,052.8

470.5

2012/13

470.5

1,310.3

17.4

1,798.2

920.2

572.9

305.1

2013/14

305.1

1,734.0

31.5

2,070.6

883.5

748.6

438.5

2014/15

438.5

1,562.8

2.1

2,003.4

820.0

834.3

349.1

2015/16

349.1

1,289.2

27.0

1,665.3

660.0

804.0

201.3

2016/17

201.3

1,529.5

33.6

1,764.4

685.0

834.1

245.3

2017/18

245.3

2,005.8

30.0

2,281.1

680.0

936.0

665.1

2018/19

Jun/19

665.1

2,664.5

5.0

3,334.6

720.0

1,650.0

964.6

Jul/19

665.1

2,665.1

5.0

3,335.2

700.0

1,500.0

1,135.2

Monthly change

0.00%

0.02%

0.00%

0.02%

-2.78%

-9.09%

17.69%

Yearly change

171.14%

32.87%

-83.33%

46.21%

2.94%

60.26%

70.68%

 

In details, cotton areas in Brazil rose by 36.2% year on year, and in the major cotton producing areas, Mato Grosso and Minas Gerais, areas increased by 38.3% and 68% respectively. For yield, the average level moved lower slightly by 2.5% to 1665 kg per hectare, but the higher areas stimulated the higher cotton output.

 

Brazilian cotton areas and output (Jul, 2019)

Region

areas (1,000 hectares)

yield (KG per hectare)

Output (1,000 tons)

2017/18

2018/19

growth rate

2017/18

2018/19

growth rate

2017/18

2018/19

growth rate

Northern area

7.6

14.7

93.4%

1561

1633

4.6%

11.9

24

101.7%

PR

4.8

6

25.0%

1596

1756

10.0%

7.7

10.5

36.4%

RO

4.5

1425

6.4

TO

2.8

4.2

48.5%

1500

1680

12.0%

4.2

7.1

69.0%

Northeast area

295.2

377.8

28.0%

1850

1740

-5.9%

546.2

657.5

20.4%

MA

22.3

27.7

24.2%

1565

1654

5.7%

34.9

45.8

31.2%

PI

7.2

16.1

123.6%

1656

1677

1.3%

11.9

27

126.9%

CE

1.2

0.9

-25.0%

286

290

1.4%

0.3

0.3

RN

0.3

0.3

0.0%

1695

1495

-11.8%

0.5

0.4

-20.0%

PB

0.5

0.8

60.0%

322

370

15.1%

0.2

0.3

50.0%

BA

263.7

332

25.9%

1890

1758

-7.0%

498.4

583.7

17.1%

Central area

841.2

1155.1

37.3%

1664

1642

-1.3%

1399.6

1896.2

35.5%

MT

777.8

1075.7

38.3%

1659

1641

-1.1%

1290.2

1765

36.8%

MS

30.4

37

21.7%

1845

1650

-10.6%

56.1

61

8.7%

GO

33

42.4

28.5%

1615

1655

2.4%

53.3

70.2

31.7%

Southeast area

30.7

51.9

69.1%

1567

1668

6.5%

48.1

86.6

80.0%

MG

25

42

68.0%

1586

1676

5.6%

39.7

70.4

77.3%

SP

5.7

9.9

72.9%

1482

1637

10.4%

8.4

16.2

92.9%

Southern area

0.7

 

117

0.8

PR

0.7

117

0.8

Northeast area

302.8

392.5

29.6%

1843

1736

-5.8%

558.1

681.5

22.1%

Central and southern areas

871.9

1207.7

38.5%

1660

1642

-1.1%

1447.7

1983.6

37.0%

Total

1174.7

1600.2

36.2%

1708

1665

-2.5%

2005.8

2665.1

32.9%

 

Currently, it is still the harvest period for Brazilian cotton, and US cotton crop is setting bolls. China will start the picking in Sep in earliest, and the harvests will be around Nov in India. For the largest four cotton producers in the world, Brazilian new cotton supply is quite ample at present.

Global cotton crop growing calendar

Country

Proportion of output

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

India

23.80%

harvests

planting

   

harvests

China

22.10%

     

planting

     

harvests

   

US

17.10%

     

planting

   

bolls setting

harvests

 

Brazil (7.5%)

Central-South

planting

     

harvests

       

planting

Northeast

 

planting

     

harvests

       

Pakistan

6.70%

       

planting

   

harvests

West Africa

5.00%

     

harvests

     

planting

   

Turkey

3.00%

   

planting

       

harvests

Australia

3.90%

   

harvests

     

planting

 

Greece

0.80%

   

planting

           

harvests

 

 

2. Price edge of Brazilian cotton is showed
The higher cotton output weighs on Brazilian cotton prices. Its spot cotton index has been in a historical low level. Based on its seasonality, Brazilian cotton prices have downward space, and may stabilize till mid-Nov.



Viewed from international cotton prices, except US and Pakistani cotton, Brazilian cotton is the cheapest cotton in the world at present. US cotton exports keep the negative growth, and the export sales of 2019/20 cotton decrease by 28% year on year. Pakistani cotton prices are relatively firm, but affected by exchange rate, USD price has more edge. Nevertheless, the competitiveness of Pakistani cotton weakens recently, as the government tends to impose sales tax on cotton and cotton yarn. The weak Brazilian cotton prices caused by higher cotton output enhances its competitiveness in international market.



 

In fact, China has imported large quantity of Brazilian cotton from the fourth quarter of 2018, especially in Jan, 2019, cotton imports have reached 136kt, and then fell down. Now, the cotton imports from Brazil keep at about 20kt. The US cotton has been replaced by Brazilian cotton on large quantity.



 

With the significant imports of Brazilian cotton, bonded cotton inventory continues to be high. Among the spot cleared foreign cotton, Brazilian cotton is mainly sold by on-call terms. With the continual weakness of ZCE cotton futures since May, the on-call Brazilian cotton has obvious price edge. On Aug 6, Brazilian cotton prices were the cheapest among the all imported cotton, and its competitiveness enhances obviously.



 

Brazilian cotton output is expected to rise largely, while in the meantime, global cotton consumption continues to weaken, so the oversupplied situation of Brazilian cotton during the harvest period is more obvious, and there is still downward space for cotton prices later. However, the trade friction makes China cotton imports from Brazil increase evidently. Besides, the Brazilian cotton has obvious price edge among cleared foreign cotton. The market shares of Brazilian cotton in China are supposed to rise. (Source: ccfgroup.com)