Cotton in driving seat as Brazil’s farmers mull safrinha corn snub

Brazil’s farmers may plant more cotton this year at the expense of corn as they seek to cash in during Brazil’s key safrinha season, the second crop period that is typically planted in February and provides much of Brazil’s corn exports, market sources have told Agricensus.

The move comes at a time when cotton prices globally are surging, while international corn prices labour under the pressure of oversupplied markets, a dyamic that could impinge upon Brazil's corn exports later this year.

“There is some debate about both crops,” Camilo Motter a broker at Granoeste Corretora told Agricensus, with farmers mulling domestic considerations versus international profitability.

While CBOT corn futures prices have plumbed multi-year lows on oversupply, Brazil’s domestic prices have been relatively attractive, with prices hitting $10.05 per bag, up 30% in just six months.

However, that may not be enough to continue to attract farmers to plant the grain. 

“Almost everyone is betting that there will be an increase in the cotton area and a decrease in the corn area in comparison to last year,” Motter said, quoting market sources as estimating a 10% increase in cotton plantings versus a fall in corn of between 5 to 8%.

According to the federal crop agency CONAB’s January report, the country’s first corn crop for the 2017/18 marketing year is expected to produce 25.1 million mt of corn, a fall of 17% year-on-year, with the second crop estimated at 67.1 million mt – a fall of just 0.3% versus the 2016/17 marketing year. 

Mind over Mato Grosso 

Cotton plantings, however, have already surged 11.9% according to CONAB, taking the total area to just over 1 million hectares, with much of that production focused in the Central West region and particularly the key state of Mato Grosso – Brazil’s largest producer and one state that has been severely affected by weather.

However, the rate of the switch to cotton will be limited by the late planting of the soybean crop, which has in turn delayed the harvest beyond January.

That means farmers won’t be able to plant as much cotton on the same land, as cotton needs to be sowed in the first two months of the year.

“That might limit the cotton area expansion, since the ideal planting window is in January/early February,” Daniele Siqueira, market analyst at Agrural, told Agricensus.

Nevertheless, corn appears to be edging out of the picture, with Mato Grosso’s economic institute, IMEA, seeing a slow start to corn plantings as the second crop starts to reach a reckoning.

Only 0.08% of corn plantings have been complete on the estimated area, with the overhanging soybean crop partly delaying progress, but equally cotton’s lure is being felt.

“It should be noted that another contributory factor is the preference for second crop cotton in this period,” IMEA stated in their monthly report, published January 12.

Despite the narrowing weather window that seems to favour corn, IMEA is expecting a 10.8% decline in corn area across Mato Grosso, with production falling 18.7% to 24.7 million mt – 5.7 million mt down on their 2016/17 production estimates for the state. 

It’ll all come out in the wash 

For cotton’s safrinha crop, IMEA is expecting a 15.8% increase to 725,563 ha – up almost 100,000 acres. And it’s not alone.

Bahia state, the second largest cotton producer in the country and a state that doesn’t have a safrinha crop, is already expecting that key cotton crop to grow 35% year-on-year according to CONAB, while corn acreage idles.

With cotton prices roaring, the ICE-listed Number 2 cotton futures contract has been trading at levels above 82 cents/lb – significant in that the contract has only reached those levels once in the last near-four years.

Analysts point at the upward momentum being driven by the speculative community, with the net long position at near-record lengths – but there are signs that the rally is starting to creak.

“The global cotton market is no longer trading fundamentals, where the 2017/18 season was one of stock accumulation and plentiful supply,” a report into the cotton experience from Rabobank concludes, warning that a surge in cotton acres as farmers look to cash in could unravel the paper tiger.

“As we approach the northern hemisphere planting season, the margins of cotton sit well above those of alternative grain and oilseeds crops,” Rabobank said, expecting the short term price strength to persist, but additional US cotton acreage “is almost a given.”

Reap what you sow

“It’s still too soon to say,” a second-Brazil based broker said of the switch, adding that the fortunes of Brazil’s currency on international markets is also something farmers are having to consider.

“For safrinha, the market is very uncertain still, there’s no business flow… we have to monitor the corn exports for January, February and March and see if some of the surplus is exported. For now, it’s still too soon to be sure,” the broker said. 

“If I were a farmer in Mato Grosso, I would bet on cotton,” Siqueira said.