High cotton prices are helping put the brakes on the relentless spread of South America's soy frontier, and brisk demand from Chinese factories could see the fiber steal more soy acres next year. Tight stocks and fund-buying by investors, who saw cotton as undervalued, stoked the commodity's rise to a 150-year high last month, and the rally is spurring plantings.
"This year, New York investment bankers will be driving cabs and Brazilian cotton growers will be driving Maseratis," said Braziilian crop analyst Kory Melby For as long as cotton's bonanza lasts, it could rein in soy's rapid expansion from the Amazon to the Pampas plains, which has been partly fuelled by a lack of profitable alternative crops. In Argentina, high corn prices have also slowed soy area growth this season.
"Soy expansion in Brazil has been slowed somewhat by increased full-season cotton production in Mato Grosso, which replaced maybe 150,000 hectares of intended soybean acreage. Cotton acreage increases probably also held down the expansion of soybeans in Bahia," said Michael Cordonnier, who is president of Chicago-based Soybean And Corn Advisor.
"Until stocks rebound, cotton prices will remain strong and Brazilian as well as Argentine farmers will probably continue to increase cotton acreage, but at a slower pace than they did this year," he added. Brazil's crop agency Conab said earlier this month cotton area would jump 44 percent to 1.2 million hectares and raised its output outlook to a record high of 1.84 million tonnes of lint, up nearly 55 percent from last season.
Soy acreage in Brazil is seen increasing by just 2.5 percent to about 24 million hectares. The battle for acres in Brazil, the world's No 5 cotton producer, is also being played out in Argentina and Paraguay, fellow soybean suppliers where the area dedicated to the oilseed has grown relentlessly and displaced other crops.
Argentina's cotton chamber sees plantings increasing by more than 25 percent to 600,000 hectares, helping limit the expansion of soy area to less than 2 percent this season. Some Brazilian producers double-up on crops to boost their income, planting corn or cotton after soy is harvested in the first months of the new year.
But with dry weather forcing late plantings of the summer corn and soy crops, farmers in some areas have shifted more fields to cotton to ensure better returns. "The expansion of the cotton area is an attempt by producers to capture more of these prices," said Haroldo Cunha, president of Brazil's Cotton Producers' Association.
ARGENTINA, PARAGUAY Argentina is forecast to produce 43 percent more cotton this season due to increased sowings, said the head of the nation's cotton chamber, Ernesto Bolton. "What we'd like to have is more or less a normal price, not shockingly high like now, but not low either, so that the crop becomes a steady choice for farmers in their crop rotation. That way we should be able to get to between 800,000 and 1 million hectares," Bolton said.
Argentina is the world's No 3 soy supplier, trailing the United States and Brazil, and the oilseed has become the crop of choice for farmers in recent years, with some stretching out crop rotations for longer than recommended for a lack of lucrative alternatives. Argentina should produce more than 330,000 tonnes of cotton lint this season and exports could reach 160,000 tonnes, Bolton said, up from the 60,000 tonnes exported this year. Another attraction for Argentine soy farmers is that cotton exports are taxed with a 5 percent levy instead of the 35 percent on soybeans.
In neighbouring Paraguay, where soy has long overtaken cotton and beef as the poor country's biggest export earner, farmers are also stepping up plantings. Growers are expected to produce 35,000 tonnes of cotton lint this year- double last season's harvest. The Agriculture Ministry estimates that trend could last next year as long as Chinese clothing factories keep ordering. "China buys whatever we can offer them. If we had 10 times more, they would buy 10 times more," Bolton said.