The Next Revolution Starts in Brazil
March 17, 2010 I would like to start this article by giving you some data from the Brazilian cotton industry from the last 12 years.
In 1997, Brazil was one of the largest cotton importers in our industry (probably the largest). At that time, Brazil produced 305,000 tons of cotton and its consumption was 798,000 tons.
By 2008, Brazil was producing 1,602,200 tons of cotton. That is quite a revolution. This growth was partly based on better yields, but of course other factors contributed to the production increase as well: the production regions moved from the Southern States to the Center West; a lower cost of production was established; new technologies emerged (high fertilization, seed development, etc.); new leadership emerged; and better and bigger scale operations began operating.
Last season, depending on how you combine northern and southern crops, Brazil was the second largest exporter in the world.
Brazilian consumption didn’t follow the production growth and the expansion in use was very lackluster. The Brazilian economy could not follow other countries’ expansion, such as that happening in China, for example.
In 2009, Brazilian production was lower due to facts that I will describe, but we already have very good reasons to believe that with the 2010-2011 crop, Brazilian production will recover to its highest level with a potential to reach a new record. Demand is also growing as the country enjoys a favorable economic environment.
Next on the Agenda
Brazilian cotton no longer has a cheap cost of production. Reasons include a poor logistic infrastructure, soil which needs high levels of fertilizer in the main growth regions, and the appreciation of the Real (Brazilian currency) against the U.S. dollar.
The logistics issue depends on government involvement and we cannot count on a short-term solution. Neither can we believe the Brazilian currency will depreciate if the country is growing at a healthy pace. Since fertilizer is necessary, there is not a lot of room to costs in that area. However, Brazil is relatively competitive and producers are already working on new technologies to reduce their cost of production.
Producers in Brazil are making a huge effort to implement the ultra-narrow technology that will allow them to reduce direct and indirect costs significantly (more seed per hectare with a shorter cycle). Reducing the plant development cycle (not only in cotton but soybeans as well) is already permitting some Mato Grosso growers to double crop on their new cultivations.
In regions where it used to be possible only to grow soybeans, farmers can now grow soybeans and cotton in the same year. Until now, very few areas located in the mid-north of the state could do this. In the past, the only possible crop to double (with few exceptions) was corn planted with a very low cost/technology. The second crop of corn in Mato Grosso represents 1,509,300 hectares that might be available for cotton in the near future. Brazilian cotton area today is 1,077,000 hectares. Brazil also produces 21,313,000 hectares of soybeans that could lose some area to cotton.
Today, the states of Mato Grosso and Goias (where the change is easier to implement) together grow 7,355,000 hectares of soybeans. How much of that area can be switched to cotton? Pick your number. I would say it depends a lot on the world’s cotton needs. The room to increase Brazilian cotton production is quite unlimited compared to what could be the marginal necessity of the world going forward.
The next revolution in Brazilian production operations is about to come. Let’s keep our eyes open because it’s only a matter of time.
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