South America Cotton Market - Growth, Trends, COVID-19 Impact, and Forecasts (2023 - 2028)

Key Highlights

• The increasing rates of mechanization for cotton picking in developing and developed countries, shrinking land and water resources, and the shortening of the labor force increased the need for farm mechanization for cotton in the major producing countries. In recent years, the demand for cotton for apparel and non-apparels increased tremendously.
• The textile industry is a major sector of the global economy and is driven by increasing cotton production in the region. Brazil is the largest cotton producer in South America, followed by Argentina with 83.5% and a 15.2% production share in 2021. Brazil has ranked in the top 5 world producers in recent years, alongside China, India, the United States, and Pakistan. Brazil is the world's second-largest exporter of cotton, with an export value share of 11% in 2018.
• According to the United States Department of Agriculture (USDA) report, in 2022, the total cotton planted area accounted for 11% compared to the current season of 1.6 million hectares. Brazil's growers responded by using ample arable land in crucial growing states and increasing equipment capacity to maximize returns. In 2022, the cotton production was 13.2 million bales, or 2.9 million metric tons, up from 11.6 million bales, or 2.5 million metric tons, in 2021. The planted area of cotton was estimated to be lower during the year 2020 because of a higher cost of production and excellent margins for alternative crops such as soybeans and corn, but owing to the higher inclination of the textile industry by cotton will further propel the market studied.
• In 2022, Brazil's Center-West state of Mato Grosso and the northeast state of Bahia accounted for 9 out of 10 hectares of all cotton area planted in Brazil (71% and 19%, respectively). Brazil's cumulative soybean planted area rose by almost 50%, yet, out of almost 470,000 cotton hectares added across Brazil, Mato Grosso accounted for 82%, or 387,000 hectares, of the new area. In the 2020 season, growers in Mato Grosso increased the cotton planted area by over 300,000 hectares - more than the total cotton area sown in all of Bahia.

South America Cotton Market Trends

Increasing Demand from the Textile Industry

• South America has some major textile-producing countries, such as Peru, Brazil, and Colombia. Peru is South America’s biggest clothing exporter. In 2021, the Brazilian Textile Industry Association (ABIT) projected a recovery in domestic processing and manufacturing on the assumption of GDP growth of around 4% year-on-year.
• Based on ABIT, textile production grew to 2.03 million tons in 2021, an increase of 8.3% compared to 2020. Clothing production should rebound to reach 5.81 billion pieces, an increase of 23% year-on-year. Domestic sales are estimated to rise 10.5% for textiles and 25% for clothing.
• Post interlocutors indicated that factors powering Brazil’s domestic textile and clothing manufacturing was aligned perfectly for the sector to reach progressive levels in 2022. On the industry side, since cotton prices are hitting record highs, the high raw material cost drastically cuts into the mills’ margins. This has a compounding effect on the industry, which is already struggling with the Brazilian Real (BRL) currency devaluation - around 70% of the textile and apparel sector’s operating cost is in foreign currency.
• The industry has no choice but to pass on the costs to consumers, who may cut back on purchases even more given the rising domestic prices. The global textile market is also increasing enormously, which is the key factor for Brazilian cotton exports. It is expected to grow further in the coming years.

Brazil Dominates the Export Market

• Brazil is the leading cotton exporting nation in South America and the fourth-largest exporting nation in the world, exporting 56% of its production to the world. China, Japan, and Spain are the major export partners of Brazil, with 67.5%, 16.8%, and 15.4%of import value share, respectively. Brazil, Argentina, and Paraguay are the other cotton exporters in South America. The United States is one of the major import partners in Brazil.
• In recent years, the most significant growth in cotton cultivation has occurred in the Northeast Maranhao, Tocantins, Piaui, and Bahia (MATOPI) area and Brazil’s north region. For example, production has taken off in Rondonia state in the last three years. Yet, despite notable gains in percentage terms, these regions are still far behind the two main producer states.
• Brazil would have to significantly improve export infrastructure for production to take off in the North and Northeast. 95% of Brazil’s cotton exports are shipped via the port of Santos, in Sao Paulo state. It would be more cost-effective to ship cotton produced in the northern part of the country from ports in the North and Northeast - the so-called Northern Arc.

South America Cotton Industry Overview

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support