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October 8, 2014

Full-Season Cotton in Brazil moved to Safrinha, Replaced by Soy

Farmers in Mato Grosso are expected to reduce their full-season cotton acreage and plant 90% or more of their total 2014/15 cotton acreage as a second crop following soybeans. During past growing seasons, a maximum of 65% of the cotton in the state was planted as a second crop. The association that represents Brazilian cotton producers (Abrapa) is expecting the Brazilian cotton acreage in 2014/15 to decline 12% from last year to 990,000 hectares. If it wasn't for the possibility of planting cotton as a second crop, the cotton acreage might have declined even more according to Abrapa.

Only in the state of Mato Grosso and in limited areas of the states of Goias and Mato Grosso do Sul are farmers able to plant soybeans that can be harvested in 100 days which allows enough time for a second crop of cotton. In other cotton growing regions of Brazil, the farmers must choose between planting full-season cotton or full-season corn or soybeans. There is not enough time in the growing season for two crops.

The full-season cotton in Mato Grosso is planted during the month of December while the safrinha cotton is planted during the month of January. The planting window for safrinha cotton generally closes by the end of January. Since shorter maturity varieties are planted for the safrinha crop, both the full-season and the safrinha cotton in Mato Grosso is harvested at the same time, generally during the months of June and July.

The president of Abrapa, Gilson Pinesso, estimates that currently only 15% of the estimated 1.45 million tons of cotton that will be produced in Brazil in 2014/15 has been forward contracted. Low prices of course is the main reason for the slow selling. Studies conducted in Mato Grosso looking at the price of cotton and the cost of production, indicate that profit margins for cotton producers in the state are -6% (the study used an exchange rate of 2.27 Brazilian reals per U.S. dollar). The same study indicated that farmers in the state would lose less money on cotton as compared to corn where the profit margins are – 34%, and that if the farmer managed to sell his corn for R$ 15 per sack in 2015 (approximately R$ 2.85 a bushel).

While only 15% of Brazil's total crop has been sold, some of the largest cotton producers in Brazil have been much more aggressive in their forward contracting. According to a report in Valor Online, Erai Maggi Scheffer, owner of the Bom Futuro Group in Mato Grosso, plans to keep his cotton acreage unchanged from last year at 100,000 hectares and 100% of the cotton will planted as a second crop following soybeans. They have forward contracted two thirds of their production for 85 cents a pound compared to the current price of approximately 61 cents a pound.

Vanguarda Agro, one of the largest grain and cotton producers in Brazil, reported that they will plant all their cotton as a second crop and switch their full-season cotton to soybean production instead. During the 2013/14 growing season, they planted 11,100 hectares of full-season cotton and 15,200 hectares as a second crop following soybeans.

Walter Horita, who is one of the principal producers of cotton in western Bahia, indicated that he will keep his cotton acreage unchanged from last year at 37,000 hectares. He also indicated that he had already sold 65% of his anticipated production for 77 cents a pound while his cost of production is 65 cents a pound.