Market Observation: The Market Competition Trend Caused By The Cotton Harvest In Brazil

According to the latest report of the American Agricultural Counsellor, Brazil's cotton output in 2024/25 will be 16.6 million bales (about 3.6 million tons), an increase of 1.7 million bales or 11% year on year, mainly due to the increase in planting area and the better than expected unit yield.

In 2024/25, Brazil's cotton planting area will be 1.96 million hectares, with a year-on-year increase of 19%. It is understood that in the central and western regions of Brazil, where corn and cotton compete for the second crop, the high temperature weather at the end of 2023 led to a sharp drop in corn prices, and farmers with cotton planting infrastructure switched to cotton, driving a significant increase in cotton planting area.

Matogros, located in the central region of Brazil, is the largest cotton producing region in Brazil, accounting for nearly 70% of the total cotton planting area in Brazil. In this state alone, the cotton planting area has increased from 1.2 million hectares to 1.4 million hectares, an increase of 19%. According to the data of Brazilian Cotton Farmers Association, the cotton planting area of Bahia, the second largest production area in northeastern Brazil, reached 345000 hectares, up nearly 20% year on year.

According to this report, the unit yield of Brazilian cotton in 2024/25 is 3% higher than before, reaching 1844 kg/ha. The reason is that the weather is better than expected. The weather in all major cotton producing areas is ideal, so the unit yield is expected to increase significantly. CONAB estimates that the cotton yield per hectare in Brazil in 2024/25 will be 1874 kg, an increase of 7% compared with the last forecast (11 months ago). International institutions ICAC and the Brazilian Cotton Farmers Association have also raised the cotton yield forecast for Brazil in 2024/25.

Nevertheless, the unit cotton yield in Brazil in 2024/25 still fell by 6% year-on-year, lower than the historical record of 1954 kg/ha in 2023/24. The main reason is that the El Nino climate has an impact on the weather in South America, especially from June 2023 to April 2024, resulting in the weather and environment for cotton growth not reaching the optimal state.

As of August 19, nearly 70% of Brazil's cotton has been harvested, and the remaining cotton has also matured. With the help of good weather, cotton farmers are accelerating their harvest in recent weeks. The weather forecast shows that the rainfall in September 2024 is basically the same as that in the same period last year. If so, it may play a positive role in the final stage of cotton harvest in Brazil, especially in Mato Grosso State and Bahia State. All harvest work of the former will be completed in the first half of October, while the latter's dry land harvest is in the final stage, The harvest of irrigated fields ended in August. According to the statistics of the Brazilian Cotton Farmers Association, as of August 15, Brazil has processed 15% of cotton in 2024/25.

According to the report, in 2024/25, Brazil's cotton export volume will rise to 12 million bales (about 2.6 million tons), mainly due to three reasons: high domestic production leads to increased supply, currency devaluation and stable global import situation, but at the same time, there are two factors that will affect the performance of Brazil's cotton export. One is that China's initial inventory will increase by 13%, reaching a high point in the past seven years, This will reduce China's cotton import demand by about one third. The other is that the United States will increase its cotton supply to the international market, which may weaken Brazil's export advantage. If the growth of demand is less than the growth of supply, which will increase the ending inventory, it may lead to a decline in international cotton prices.

From February to June 2024, Brazil's cotton exports reached the highest level in the same period in history, mainly due to strong demand in the international market (especially China), increased export supply and the devaluation of the real. At the same time, cotton farmers hope to clear the inventory and avoid logistics problems before the next harvest. From August 2023 to July 2024, Brazil exported 12.3 million bales (about 2.7 million tons) of cotton, an increase of 85% year on year, 52% higher than the average of the same period in the past five years, mainly due to the increase in domestic supply, strong international demand and the decrease in American cotton supply.

According to statistics, Brazil will export 6.1 million bales (about 1.3 million tons) of cotton to China in 2023/24, an increase of 203% year on year. From 2014/15 to 2023/24, Brazil's cotton exports to China increased from 859000 bales to 5.9 million bales, a sevenfold increase. Over the same period, the export of cotton from the United States to China also increased, but it only doubled, from 2.9 million bales to 5.7 million bales. In the future, the export competition between Brazilian cotton and American cotton will be more intense.