Economic Observation: Brazil'S Cotton Sales Showed A Gradual Recovery Trend In January

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Brazil's cotton sales will gradually pick up in January 2023. Agents said that the difficulty in matching product price and quality affected the liquidity of the spot market. In this case, the cotton spot index in January remained around R $5.3/lb.

In terms of demand, the main task of traders is to complete the contract. Some buyers are looking for higher quality cotton, and some of them are willing to pay higher prices to meet specific requirements. The Center for Advanced Research in Applied Economics (CEPEA), headquartered in Sao Paulo, emphasized in its latest report on the Brazilian cotton market that because the demand of the entire textile chain is very low, it is difficult to pass on the rise in cotton prices to finished products, so agents have reduced their purchases. The cotton farmers with sufficient funds are unwilling to reduce the asking price, and the sellers are only willing to reduce the quotation of lower quality cotton. Some of them decide to wait for better trading opportunities for high-quality cotton.

From December 29, 2022 to January 31, 2023, Brazil's cotton spot index rose 0.14% to 5.2561 reais/lb. In January 2023, the average value of the index (R $5.3362) rose 0.3% month on month, but its actual value fell 23.9% year on year. Nevertheless, in January, Brazil's domestic price was 17.7% higher than its export price on average. The early trade of 2021/22 cotton for far month delivery will end in late January 2023. In terms of export, agents use ICE futures contracts to determine prices. Cotton is sold in both the current and future years.

According to the data of Brazilian Cotton Growers Association ABRAPA, as of January 26, 57.31% of Brazil's cotton planting in 2022/23 has been completed. According to the data released by Cotton Outlook on January 27, the world cotton output in 2022/23 will decline by 0.14% to 24.862 million tons, 0.7% lower than the previous year. Brazil's cotton production is expected to grow 13.5% over the previous year, but 0.9% lower than the forecast in December 2022.

In the first 11 months of 2022, Brazil exported cotton worth US $3342 million. China is the largest buyer of Brazilian cotton, accounting for 28.81% of Brazilian cotton exports, reaching $9630.4 million. In 2022, the total export volume of Brazilian cotton will increase and the quantity will decrease. The export volume of goods shipped to China increased by 23.84% over the same period last year's US $777.66 million.