Voluntary Report - public distribution

**Date:** 1/3/2007

**GAIN Report Number:** BR7602

BR0000

**Brazil**

**Cotton and Products**

**Cotton Update: A Year of Recovery**

**2006**

**Approved by:**

![](media/image1.wmf)Alan Hrapsky, Counselor

U.S. Embassy

**Prepared by:**

Elizabeth Autry, Agricultural Attaché

**Report Highlights:**

Cotton area is expected to regain much of the area lost in recent years,
as high internal prices and a stable exchange rate encourage planting.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Unscheduled Report

Brasilia \[BR1\]

\[BR\]

Reports indicate that cotton will be the first crop to recover from
several years of liquidity crisis. Strong internal prices and an
expected stable exchange rate have led farmers in Mato Grosso and Bahia
to make plans to significantly increase acreage planted to cotton. This
increase is significant enough that, even with a slight decrease in area
in the south of Brazil, overall area is expected to increase
approximately 20 percent. As a result, Post has increased 2006/07 area
to 1.03 million hectares (from 856,000 hectares in 2005/06) and
production to 6.1 million bales (from 4.767 million bales in 2005/06).

The low production in 2005/06 (resulting from low prices) succeeded in
raising domestic prices. As a result, it was more appealing for
producers to sell in the domestic market, putting at risk approximately
460,000 tons worth of already-signed export contracts. The Brazilian
government decided to utilize PEPRO (Prêmio de Equalização pago ao
Produtor), for which it had budgeted R\$253.5 million (USD 118.6
million) in 2006, in order to allow the export contracts to be filled.
PEPRO is a subsidy paid to the producer or cooperative to help them sell
their product. The amount paid is the difference between the reference
price (based on the minimum guaranteed price) and the highest bid at the
government auction. The recipient then has until a specified date to
sell the product and provide proof to the government, with the required
documentation determined by whether the product is sold within the
state, sold outside of the state, or exported. By August 24, the
government had spent R\$209.3 million (USD 97.95 million) for 380.6
thousand tons of cotton. This amount, while significant, is less than
one percent of the value of the Brazilian crop, and therefore considered
to be a *de minimis* domestic support expenditure according to Brazil's
WTO commitments. This program was very popular with the industry, which
has requested that it be used again in 2007. To date, the government has
not made a decision regarding the use of PEPRO in 2007.

The minimum guaranteed price for cotton was last changed before the
2003/04 crop, when the price was raised from R\$33.90/15 kg to
R\$44.60/15 kg. Except for a brief spike in prices in early 2006, the
average monthly price of cotton has been below the minimum price since
October 2004.

Reports indicate that farmers have already committed up to 60 percent of
the future cotton crop in exchange for inputs (fertilizer and pesticide)
to plant cotton, soybeans and other crops this year. In addition, cotton
is reported to be the one crop in Mato Grosso that will return a profit,
leading farmers to plant cotton to cover losses in other crops.

As most of the 2006/07 production will be harvested towards the end of
the trade year, exports from this crop will be made in the 2007/08 trade
year.

# PS&D {#psd-1}

+-----------------+-----+------+-----+------+-----+------+----------+
| **Cotton**      |     |      |     |      |     |      |          |
+-----------------+-----+------+-----+------+-----+------+----------+
|                 | **  | **R  | **  | **Es | **  | **Fo | **UOM**  |
|                 | 200 | evis | 200 | tima | 200 | reca |          |
|                 | 4** | ed** | 5** | te** | 6** | st** |          |
+-----------------+-----+------+-----+------+-----+------+----------+
|                 | **U | **   | **U | **   | **U | **   | ** **    |
|                 | SDA | Post | SDA | Post | SDA | Post |          |
|                 | O   | Es   | O   | Es   | O   | Es   |          |
|                 | ffi | tima | ffi | tima | ffi | tima |          |
|                 | cia | te** | cia | te** | cia | te** |          |
|                 | l** |      | l** |      | l** |      |          |
|                 |     | **\  |     | **\  |     | **\  |          |
|                 |     | [New |     | [New |     | [New |          |
|                 |     | \]** |     | \]** |     | \]** |          |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Market Year   |     | 08/  |     | 08/  |     | 08/  | MM/YYYY  |
| Begin**         |     | 2004 |     | 2005 |     | 2006 |          |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Area          | 0   |      | 0   | 0    | 0   | 0    | ('000    |
| Planted**       |     |      |     |      |     |      | HA)      |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Area          | 1   | 1172 | 850 | 856  | 1   | 1030 | ('000    |
| Harvested**     | 172 |      |     |      | 000 |      | HA)      |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Beginning     | 4   | 4626 | 5   | 5081 | 4   | 4134 | ('000    |
| Stocks**        | 626 |      | 081 |      | 067 |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Production**  | 5   | 5900 | 4   | 4767 | 5   | 6100 | ('000    |
|                 | 900 |      | 700 |      | 500 |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Imports**     | 212 | 212  | 308 | 308  | 500 | 500  | ('000    |
|                 |     |      |     |      |     |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **MY Imp. from  | 0   | 0    | 0   | 0    | 0   | 0    | ('000    |
| U.S.**          |     |      |     |      |     |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **TOTAL         | 10  | 1    | 10  | 1    | 10  | 1    | ('000    |
| SUPPLY**        | 738 | 0738 | 089 | 0156 | 067 | 0734 | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Exports**     | 1   | 1557 | 1   | 1972 | 1   | 1475 | ('000    |
|                 | 557 |      | 972 |      | 475 |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **USE Dom.      | 4   | 4200 | 4   | 4050 | 4   | 4100 | ('000    |
| Consumption**   | 200 |      | 050 |      | 050 |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Loss Dom.     | -   | -100 | 0   | 0    | 0   | 0    | ('000    |
| Consumption**   | 100 |      |     |      |     |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **TOTAL Dom.    | 4   | 4100 | 4   | 4050 | 4   | 4100 | ('000    |
| Consumption**   | 100 |      | 050 |      | 050 |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Ending        | 5   | 5081 | 4   | 4134 | 4   | 5159 | ('000    |
| Stocks**        | 081 |      | 067 |      | 542 |      | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **TOTAL         | 10  | 1    | 10  | 1    | 10  | 1    | ('000    |
| DISTRIBUTION**  | 738 | 0738 | 089 | 0156 | 067 | 0734 | 480lb    |
|                 |     |      |     |      |     |      | bales)   |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Stock to Use  | 88  | 88.2 | 6   | 68.6 | 82  | 92.5 | (        |
| %**             | .25 | 5777 | 7.5 | 4829 | .20 | 3812 | PERCENT) |
|                 | 777 |      | 357 |      | 814 |      |          |
+-----------------+-----+------+-----+------+-----+------+----------+
| **Yield**       | 1   | 1096 | 1   | 1213 | 1   | 1289 | (KG/HA)  |
|                 | 096 |      | 204 |      | 197 |      |          |
+-----------------+-----+------+-----+------+-----+------+----------+