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