South America Calling

A recovery in cotton prices, severe logistical problems with second-crop corn and the decline of the Brazilian real against the dollar will prompt Brazilian farmers to plant more cotton in the 2013-14 season.

Acreage will grow 18.6% to 2.6 million acres when planting begins in November, Celeres, a local farm consultancy, said this week.

In past decades, such a jump was rare as the cost of acquiring cotton inputs and machinery would have overextended most of Brazil's cash-strapped farmers. But over the last five seasons, Brazilian cotton production has concentrated in the hands of large, well-capitalized and professionally run farms, which can ramp up production quickly when prices are attractive.

An upturn in cotton futures during August led to widespread fixing of prices for the next crop, underlining the move back to the oilseed after a sharp drop in area last year.

A devaluation of the real, which has fallen 21% against the dollar since March 1, will also stimulate production as most of Brazil's onerous logistics costs are in local currency.

The final factor is low margins on second-crop corn, planted after soybeans, in 2013-14. This may prompt more farmers to instead plant cotton after beans in January.

While cotton planted area will grow substantially, it remains around 24% below levels registered in 2011-12.

Assuming there is no repeat of this year's drought in the west of Bahia, Brazilian cotton output will bounce back 30.4% to 1.70 million metric tons (mmt) next season, says Celeres.

Declining production in both the U.S. and China will open export opportunities next year and shipments will rise 28% to 680,000 tons next season, says the consultancy.

Celeres estimates Brazilian farmer breakeven for cotton currently sits at around 80c per pound on New York futures.

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