Domestic Cotton Prices in Brazil Strengthened in Late January, Spot Transactions Surpass Export Parity

Despite facing dual pressures of weak international cotton prices and a softer US dollar, Brazil's domestic cotton market showed an independent strengthening trend in late January. Market reports indicate that as sellers held firm on their offers and buyers accepted higher prices to meet demand, domestic spot transaction prices successfully broke through the export parity benchmark. This phenomenon highlights the current tight situation in the domestic market.

Persistently low market liquidity further intensified price support. Currently, Brazilian farmers are focusing their main efforts on cotton planting and soybean harvesting, resulting in limited spot cotton supply and inactive trading. This tight supply-demand balance provided a floor for domestic prices.

In terms of price indices, January showed a divergent trend between domestic and international markets. Brazil's important domestic CEPEA/ESALQ cotton index fell only slightly by 0.31%, demonstrating significant resilience. In stark contrast, the FAS export parity index, which reflects international competitiveness, fell by 2.59%. The widening of this gap visually illustrates the strengthening of domestic prices relative to export competitiveness, which may affect the export attractiveness of Brazilian cotton in the future.

Analysts believe that the direction of domestic cotton prices in Brazil in the short term will still depend on farmers' sales progress, fluctuations in international market prices, and changes in the exchange rate of the Brazilian Real against the US dollar. The market is closely watching the upcoming new cotton harvest season for clearer directional guidance.