SLC reassures on cotton price. But quitting coffee

SLC Agricola sounded a resilient note on cotton prices, shrugging off the threat of reforms to China's huge inventories, but said it was getting out of coffee, despite the 80% rebound in prices this year.

The farm operator - which controls more than 450,000 hectares, an area nearly as big as Connecticut or the UK county of Northumberland - acknowledged the uncertainty in the cotton market caused by a change of Chinese farm support policy spurred by the creation of huge stockpiles.

China is expected to end 2013-14 with cotton stocks of some 58m bales, equivalent to 60% of the world total and 19 months' domestic consumption, thanks to a policy of offering farmers a guaranteed price with the value of late proving much higher than international values.

However, Chinese authorities, which "usually buy from the farms at 155 cents a pound", looked unlikely to unload its stockpiles onto the market when prices are some 40% below that level, SLC said.

'Not going to burn inventory'

"We believe that they are going to keep this stock and to sell slowly," Aurelio Pavinato, the SLC chief executive, said.

China, which imposes strict restrictions on cotton imports, was able to sell to domestic mills, while at some loss, at levels well above those in the international market.

"They sell to the mills by 135-140 cents per pound. They are not going to burn this inventory and purchase in the market at a lower price."

Price outlook

Mr Pavinato forecast that prices would stay near current levels, "between 80-90 cents per pound".

"We can say we don't see much possibility to increase the price more than that.

"But we don't see any possibility [that prices will] come down because for synthetic fibre the cost is between 72-75 cents per pound.

"Normally, when the cotton price comes to nearly the synthetic fibre price, mills buy more cotton and that automatically increases the demand for cotton, increases the price."

'Leaving the coffee business'

Cotton counts as one of SLC's main crops, with 93,679 hectares planted with the fibre for 2013-14, up 22% year on year.

The group in 2013 invoiced for R$637m in cotton lint and seed.

Indeed, SLC said that it was seeking to ditch its relatively small coffee production, of which it invoiced for R$9.15m last year, in favour of row crop plantings.

"Coffee is a permanent crop, so if we plant coffee this year we spent three years to start to harvest in coffee," Mr Pavinato said.

"Where we have coffee, we have the possibility to plant cotton, corn for seed for Pioneer and wheat," a strategy which during the three years "much more profitable compared with coffee.

The group actually had a strategy of "leaving the coffee business".

'Testing sugarcane'

The comments come despite a jump in New York coffee prices this year to some 200 cents a pound, because of Brazilian drought, taking them well above production costs.

SLC said that it was in fact "evaluating" a switch into sugarcane.

"We are testing sugarcane, just a small field, just one field," Mr Pavinato said.

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