The dip in international cotton prices is the biggest reason behind Brazilian cotton acreage shrinking by 35 percent this growing season, according to a survey from Conab (the state-run Brazilian National Supply Company). Many cotton growers are shifting to sugarcane, corn or soybeans.

The loss of cotton acres will have a huge impact in Brazil, which since 2003 has gone from cotton importer to cotton exporter. Now Brazil may have to be more of an importer than exporter to meet internal demand.

Cotton prices have reached a five-year low and this, along with the strengthening of Brazilian currency, the real, has been devastating to producers. Some of them claim losses of more than $200,000 on their cotton crops. Their already high debt contributed to the decision to shift crops and even idle land.

Another problem is the flooding of cotton into the Brazilian market, with large stocks all over the country and numerous sellers.

One of the hardest hit states in Brazil is São Paulo. Once a traditional crop in the area, cotton is now disappearing from sight in Paulista’s fields (the cotton production region around Sao Paulo).

Many cotton growers have already changed their investments, betting on corn and soybeans, both much safer crops than cotton in Brazil. The majority of growers, though, have lent their land to sugarcane processing plants to grow sugarcane. As the shortest lending contract is five years long, chances are that this cotton acreage shrinking in SĂŁo Paulo has come to stay.

The Paulista story repeats itself all over the cotton-growing areas in Brazil. Only 1.9 million acres have been planted for the current crop, down from 3.65 million acres nationwide last season. The once bright future for farmers hoping to expand to international markets has become a serious headache. Some of them are pushed towards cotton planting to be able to fulfill contract agreements with the textile industry, although they know this will mean financial loss.

For the 2006-07 season, Paulistas are a little bit more optimistic because this will be the first season they’re allowed to use transgenic cotton varieties, which should mean much cheaper production costs. This edge, they hope, will give them a little cushion on their struggle to survive while prices remain low.

Many of Brazilian cotton producers’ frustrations are aimed at their government, which has halted negotiations for debt refinancing and cut short loans. A strong currency policy is also being blamed for the grim state of business. Some associations, like Appa (Paulista Cotton Growers Association), want the government to set a better currency policy for cotton exporters as well as a minimum price policy for the product. Nowadays, those who sell the arroba (Brazilian measure of cotton equivalent to 33 pounds) for less than 40 reals ($18.20), will be losing money,” says a representative for Appa.

Nevertheless, local producers also complain about international competitors, especially the United States. Brazilians claim that their problems also are due to the United States not taking action on WTO decisions which ruled against the United States for its subsidies to U.S. cotton growers.

Brazilian market analysts say for the next few years, the country will not produce as much exportable surplus as in the past three or four years. That said, Brazil should in the mid-term, become a good market for cotton exporters around the globe.

As for this season, Brazilian exports are expected to shrink from 390,000 tons to 360,000 tons. And for the next season, forecasts are that exports will shrink even further, with less planted area, lower stocks and the potential loss of infrastructure in Brazil.

Jose Sergio Osse is a Brazilian agricultural journalist and owns a public relations firm in Sao Paulo. He has worked as a press advisor for Syngenta, Brazil, and as an agricultural reporter for the country’s major newspaper.