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June 5, 2020

Brazil's Cotton Acreage to Decline in 2020/21, More Corn and Soy

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Brazilian crop most impacted by the Covis-19 pandemic is cotton. While domestic soybean and corn prices in Brazil have been at record high levels for months due to the devalued Brazilian currency and record exports, cotton prices in Brazil have gone in the opposite direction.

According to the Center for Advanced Studies in applied Economics (Cepea), cotton prices have declined 28.7% over the past year. On June 3, 2019, cotton was priced at 73 cents per pound in Sao Paulo, but on June 3, 2020, the price had declined to 52 cents per pound.

The director of the Cotton Producers Association of Mato Grosso (Ampa), indicated that the current price of cotton is at breakeven levels or worse and that many producers will loose money on their 2019/20 cotton production. The director of the Cotton Producers Association of Bahia (Abapa) tells a similar story. The breakeven price for producers in Bahia is approximately 60 cents per pound, but producers have only been able to sell their cotton for 57 cents per pound.

Cotton producers in Brazil are coming off of several strong years of sales and prices. Brazilian producers planted record cotton acrege for the last two years moving Brazil ahead of India as the second largest cotton exporter in the world after the United States.

The trade dispute between the United States and China was the principal driver behind Brazil's record cotton exports. In 2019, Brazil exported a record 1.61 million tons of cotton, which was an increase of 65% compared to 2018 with the vast majority going to China. Unfortunately, the Covid-19 pandemic has completely changed the cotton dynamic. The demand for cotton has declined both in China and in the domestic Brazilian market.

As a result, it is anticipated that Brazilian farmers will reduce their cotton acreage in 2020/21 by 10% to 20% with those hectares migrating to corn and soybeans. Mato Grosso is the largest cotton producing state in Brazil with nearly all the cotton planted as a second crop following soybeans. Since cotton competes with corn for safrinha acreage in Mato Grosso, if farmers reduce their cotton acreage, they will increase their safrinha corn acreage.

Bahia is the second largest cotton producing state in Brazil and the cotton in Bahia is planted as a full-season crop. In Bahia, cotton competes with soybeans for acreage, so if farmers plant less cotton in 2020/21, they will migrate most of those hectares to soybeans.

In Mato Grosso, farmers have sold 70% to 75% of their anticipated 2019/20 cotton production and 30% of their 2020/21 production. In Bahia, farmers have sold 70% of their 2019/20 production and less than 20% of their 2020/21 production. Last year at this time they had forward contracted 40% to 45% of this year's crop.

Conab estimates that the cotton acreage in Brazil increased 3.3% in 2019/20 to 1.67 million hectares and cotton yields are expected to be basically unchanged from last year. Brazil's 2019/20 cotton production is estimated at 2.88 million tons or an increase of 3.6%. Mato Grosso is expected to produce 2 million tons, which is an increase of 7.4% compared to last year and Bahia is expected to produce 563,000 tons or a decline of 5.7% compared to last year.