RC: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. I am Renata Cardarelli, editor of the Argus Brazil Grains and Fertilizer publication and in today's episode, I will talk to Nathalia Giannetti, reporter for the Argus Brazil Grains and Fertilizer publication, about this 2023-2024 season’s record cotton area.
RC: Welcome, Nathalia! Could you first tell us of how much this record will be and how it compares with the area planted in previous cycles?
NG: Sure, Renata. Brazil’s national supply company Conab projects that Brazilian farmers will harvest a little bit more than 1.94 million hectares of cotton in the 2023-2024 crop. This represents an expansion of more 280,000ha from the prior season, which sowed the same record area of 2019-2020.
RC: That is a very significant rise, Nathalia. Where does this area expansion come from? And what is boosting this advancement of sowed area?
NG: Mato Grosso state, which produces about 73pc of the national cotton lint crop, accounts for almost all this expansion.
Conab and the Mato Grosso institute of agricultural economics estimate that the state planted around 1.4mn hectares this season, an expansion of nearly 200,000ha from the 2022-2023 crop.
This planted area increase happened mostly because of the lower cotton production costs in 2023-2024. Imea estimates that costs dropped by 21.5pc from the last season, following a 36pc drop in fertilizer costs from the previous season.
RC: Interesting, Nathalia. Areas set for cotton growing are prepared with nitrogen-based fertilizers around December. So, purchases should be done in the second half of the year. What were fertilizers’ prices at this time in 2023 and a year before that?
NG: That is right, Renata. Purchases for planting cotton in December should take place mostly in August and September. The average urea cfr price ended August 2023 at $348/t cfr. That compares with $625/t cfr in August 2022.
RC: Did this slump of fertilizer prices and production costs led producers to prefer growing cotton rather than corn, for example?
NG: Exactly, Renata. Corn crop also is reliant on nitrogen-based fertilizers, but the grain’s cost of production dropped by 1pc in the 2023-24 crop in Mato Grosso compared to the previous crop. There is also the fact that corn’s profitability decreased a lot in the last season. The global oversupply has been pressuring international prices to levels that are in line with production costs. Imea estimates that the corn bag in the 2023-24 should be dealt at R38,36 to cover production costs, while the bag is currently dealt at R37,55 in Mato Grosso.
Another factor that favored the 2023-2024 cotton crop is the impact of the El Niño weather phenomenon over soybean areas between September and December. Extremely dry weather conditions resulted in about 6pc of soybean areas needing replanting. But those farmers that already had intentions of planting cotton as a second crops decided to abandon soybean growing in most damaged areas to expand investments in cotton.
With that, the cotton crop was planted mostly within its ideal planting window, while soybean also registered a shorter developing cycle because of the drought that hit the state last year.
RC: I imagine that planting within this ideal window has boosted output projections for the 2023-24 crop. What is the current estimate for cotton, Nathalia?
NG: Conab projects that Brazil should produce over 3.6mn t cotton lint this season, an increase of almost 15pc in the year. Imea estimates that cotton lint production in Mato Grosso totals 2.6mn t, an increase of 12pc on the year.
Conab's first estimate for the national crop was of approximately 1.7mn ha planted and 3mn t produced. The initial output estimate for 2023-24 was 5.3pc lower than the 2022-23 volumes.
RC: Now let’s talk a bit about demand, Nathalia. Where will this volume be exported to? What is the outlook?
NG: Brazil exports most of its cotton lint production. Conab projects shipments to reach 2.8mn t this year.
This exceeds the 2023 exports by 1.2mn t and surpasses the current record of 2019-20 800,000 t.
The favorable prospects for Brazilian exports are also driven a higher international demand for cotton in 2024, caused by an expected growth in the global economy, especially from China.
RC: China is the main buyer of Brazilian soybeans and corn. Does this also apply to cotton, Nathalia?
NG: It does apply, Renata. China received 48pc of the 1.6mn t, according to data from Brazilian government.
In the first half of 2024, Brazil exported 1.4mn t of cotton, of which more than 41pc went to China.
The peak of cotton exports from Brazil usually occurs in the second half of the year, after the harvest is completed. Field works for the 2023-24 cotton harvest reached 76.1pc of the area sown nationally by 26 August.
RC: So, we can expect cotton shipments to continue increasing in the coming months and, who knows, maybe even add to higher estimate for the 2023-24 crop. Thanks for joining, Nathalia!
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