Higher international prices have motivated Brazilian farmers to expand cotton acreage in the 2022-23 season, which could lead the country to a record in cotton lint production. But higher input costs have decreased fertilizer usage for cotton crops.
Join Camila Dias, Argus Brazil Country Manager, and Alessandra Mello, Deputy Editor for the Argus Brazil Grains and Fertilizer publication. They talk about the growth of Brazil's cotton production and its forecast for 2022-23 season.
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CD: Hello and welcome to 'Market Talks' - a series of weekly podcasts produced by Argus discussing the main events impacting the commodities and energy sectors in Brazil and around the world. My name is Camila Dias, Argus Brazil Country Manager.
In today's episode I chat with Alessandra Mello, deputy editor of Argus Brazil Grains and Fertilizer publication about the outlook for Brazil's 2022-23 cotton crop, which could see record production despite a reduction in fertilizer use. Alessandra, welcome.
AM: Thank you, Camila, always a pleasure to be here.
CD: Alessandra, the 2022-23 cotton crop in Brazil start being planted in some regions as early as November this year, what is the outlook for this crop?
AM: Well Camila, despite the increase in production costs, Brazilian farmers expect to harvest the largest cotton output in history in 2022-23, as there will be an expansion in the planted area and good weather conditions are also expected.
In the 2022-23 season, farmers plan to plant 1.78 million hectares of cotton, a 9.3pc increase over the 2021-22 season. Favorable weather should lead to high yields, so production was estimated at 3.1 mn t, a 27pc increase over the 2.5 mn t harvested in the recently ended season, according to the Brazilian Cotton Producers Association (Abrapa). It is worth noting that the amount of acreage being planted is not a record. Brazil planted an area close to 4 mn ha of cotton at the end of the 1970s (nineteen-seventies), but it was a very rudimentary crop, without modern technology, and the cotton lint yield was 140 kg per hectare. Today, that is almost 13 times bigger, close to 1800 kg per hectare, which is why the expected record is in production, not in acreage.
CD: It is indeed a very large difference... But why does this occur, has the production model really changed that much?
AM: Yes, in fact, Brazil’s production focuses on exports. Brazil is the world’s second-largest global cotton exporter and fourth-largest lint producer. And these increasing productivity gains have been occurring because today most cotton is grown on large rural properties that adopt high levels of technology in their seeds, fertilizers, agrochemicals, and machinery. Most of the production comes from 400 farmers and companies associated with Abrapa, with crop fields spread over 2,200 (twenty-two hundred) farms, which is not very much, considering the country's global relevance in cotton. One of these business groups, for example, which accounts for 11pc of all Brazilian cotton production, is SLC Agricola, a company listed on the Brazilian stock exchange, B3.
CD: Alessandra, what about the increase in input prices, especially fertilizers. Hasn't it affected the plans for the 2022-23 cotton crop?
AM: Well, actually the investments to expand cotton production have been driven by the rising prices of the commodity in the international market. But no doubt the cost is a factor that has been worrying farmers. Abrapa’s president Julio Busato told me that production costs in this cotton harvest are 50pc higher than the last year. But according to him, farmers are still expanding the crop, because the investments made in cotton production sometimes take more than five years to generate financial returns. He mentioned, for example, that a cotton harvesting machine costs R$7 million ($1.3mn). Now, going back to this issue of more expensive fertilizers... Abrapa's president told us that cotton producers in the 2022-23 crop year are reducing their phosphates and potash consumption by 15pc. The average consumption used to be 120kg/ha in phosphates and 180kg/ha of potash. It is possible to estimate that the cotton farmers have purchased 48,000t less potash this year, in addition to reducing phosphate purchases by at least 32,000t. Nitrogen use is being maintained at 150kg/ha, which points to a 267,000t demand for the crop.
The first plantings start in November in Bahia state. But the largest producing state, Mato Grosso, plants cotton starting in January, as soon as it harvests soybeans. And despite the reduction in fertilizer usage, good levels of productivity are expected: 1800kg of cotton lint per hectare, because there is a good nutrient reserve in the soil.
CD: Is the international scenario expected to remain positive for cotton in 2023?
AM: Several market consultants have been highlighting that, despite high input prices, the profitability of the main agricultural commodities, such as cotton, continue to be at historically high levels. This scenario, coupled with the fundamentals of global supply and demand, have been motivating Brazilian producers to plant cotton. The forecast for the 2022-23 cotton season, according to data from the International Cotton Advisory Committee (ICAC) is for a 3.2pc drop in consumption, to 25.3mn t. This is because of the global economic recession. But world production is also expected to fall by 2.8pc, to 24.71 mn t. Ending stocks are projected at 19.78 mn t, down from 20.37 mn t in the 2021-22 crop year.
In any case, there is a warning light flashing here. Throughout the month of October, we saw sharp falls in international cotton prices. It is a product that can be greatly impacted if an economic recession in important consuming countries occurs, so it is something that we need look out for in the coming months.
CD: Of course... but Alessandra, to conclude, what do the cotton producers say about this ESG trend that is taking over the global markets and often focuses on Brazilian agriculture?
AM: Great point, Camila, you know that for a long time now I have been talking with farmers and once again a conversation I had with Julio Busato, Abrapa’s president, was very interesting. He is very much concerned with ESG issues. To this day, he speaks with the typical accent of the small towns in the rural areas of southern Brazil, where the family farming model predominates. In the 1980s (nineteen-eighties), he left Rio Grande do Sul state and traveled more than 2,300 km to the west of Bahia state, in the Brazilian northeast, to buy land in the Cerrado region, which despite its tropical climate, was then still relatively underdeveloped. Far from his wife and children, he says he lived there for a long time without electricity, roads or basic sanitation. "But it was worth it," he told us with pride. You can see that Busato and many farmers like him consider environmental and sustainability awareness a key condition to continue accessing markets. He makes a point of saying that practices such as "no tillage planting", where the straw stubble, from crop rotation, helps preserve the soil, have been fundamental in the sustainable growth of soy and cotton crops in western Bahia, which today is one of the most significant agricultural regions in the country. In September 2022, the farmer of humble origins, now a big businessman, was in Switzerland, participating in the Annual Conference of the International Textile and Manufacturers Federation (ITMF), to discuss programs aimed at sustainability. The Brazilian Association of Cotton Producers also has its own office in Singapore, which has been negotiating directly with Asian countries on a commercial valorization equal to or better than North American cotton, today the most exported cotton globally. In this scenario, the Brazilians expect to overtake the US and reach the number one position in global cotton exports by 2030. For this to happen, more farmers have given signs that they are really open to change. Currently, 84pc of the area cultivated with lint in nine Brazilian states and 85pc of the harvested volume already have the Responsible Brazilian Cotton (ABR) certification, which allows for the social and environmental traceability that is increasingly being demanded by international buyers.
CD: Thank you, Alessandra.
This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!