Brazil faces challenges in the domestic and foreign cotton market

Brazil has consolidated its position as the world's largest cotton exporter in the 2023/24 harvest, surpassing the United States. Brazilian exports reached 2,7 million tons between August 2023 and July 2024, with China being the main destination, accounting for 49% of shipments. Despite its leadership in global markets, the sector faces challenges with falling domestic prices and changes in international demand dynamics, according to a report by Itaú BBA.

Cotton prices in the Brazilian domestic market have been falling consecutively. In Rondonópolis, Mato Grosso, the average price in October fell by 0,7%, and in the first half of November, the reduction exceeded 1%, reaching R$3,73 per pound. This devaluation is attributed to the increase in domestic supply, which kept domestic prices below those practiced in the international market.

Sales of the 2024/25 harvest in Mato Grosso are below the average of the last five years, with only 41,6% sold so far, the bank reports in a monthly report. In the same period last year, the index was 45,1%. Analysts point out that the drop in prices, which are 11% lower compared to the same period last year, contributed to the decline in sales.

Positive projections for production

Brazilian cotton production for the 2024/25 harvest is projected to grow by 3%, reaching 3,7 million tons, according to estimates by Conab and the USDA. The planted area is also expected to expand, reaching 2 million hectares. However, in the global market, supply and final stocks are expected to grow, putting pressure on prices and competitiveness.

Among the world's top producers, only India is expected to see a reduction in planted area. The US crop, on the other hand, is expected to grow 18% in 2024/25, despite recent revisions that reduced expectations to 3,1 million tonnes.

International demand

China, the world's largest importer, is expected to reduce its cotton purchases in 2024/25. Chinese imports, which were 3,3 million tonnes in the current harvest, are expected to fall to 2 million tonnes, a reduction of 40%. Increased domestic production, weak consumption and high inventories explain the decline.

Given the drop in Chinese demand, Brazil will need to diversify its export markets to sustain shipment volumes. Currently, Vietnam (14%), Bangladesh (11%) and Turkey (8%) are the main destinations besides China.

Outlook for the sector

Despite the challenges, projections indicate that Brazil will maintain its global leadership in cotton exports in the 2024/25 harvest, with estimates of 2,7 million tons, according to the USDA. Forecasts from Conab and Abrapa are even more optimistic, pointing to 2,9 million tons.