Cotton Rally Needs Rain

COTTON

July Cotton extended its rally early Wednesday, and it reached a new contract high for the first time since October 2023. The nearby contract has reached its highest level since May 2024. The market closed higher on Tuesday for a fifth straight session and for the ninth session out of the last 10, and it has made new highs every week since for the past seven. Extremely dry conditions in the US cotton belt has been the main supportive factor. As of last week, 97% of US production was in an area experiencing drought. World Weather Inc. said recent showers in south Texas and northeastern Mexico were welcome, but much more rain is needed. Some increasing rainfall is expected during the next couple of weeks. West Texas will see some improving opportunity next week. The Delta will start getting more timely rainfall this weekend and next week, but they added that a full recovery to normal soil moisture is unlikely. The southeastern US may get some rain next week that may offer temporary improvements.

SUGAR

July Sugar was higher for the third straight session early Wednesday after flirting with contract lows on Friday. Stubbornly higher oil prices lend support on ideas that it will encourage more ethanol production from sugar cane. Below average monsoon rainfall expected for India this summer could lower cane production for the 2026/27 crop. Thailand production could also suffer from El Nino, which is now expected to arrive as early as June. The large global supply in 2025/26 is being countered by tightening expectations for 2026/27. Czarnikow lowered it global sugar surplus for 2026/27 to 1.1 million metric tons from 1.4 million in March. They pointed out that there is a risk of lower production due to El Nino, and that that even a minor change in production could tip the global balance into deficit.

COCOA

July Cocoa respected the Monday’s gap higher on its selloff yesterday, which gives the bulls a little hope that the 1^st quarter grind data will represent the bottom of the declining demand trend. The fact that Asia surprised the with an increase may be particularly supportive, as that region was viewed as having the most growth potential before the unprecedented rally in 2024 severely damaged demand. Growing weather in West Africa continues to be supportive to a strong mid-crop. World Weather Inc. expects regular rounds of showers and thunderstorms through the next week from Ivory Coast through Nigeria, though there will be periods of drying. El Nino is expected to arrive in early summer, and this could bring some drier than normal conditions. ICE cocoa stocks fell 8,646 bags on Tuesday to 2.624 million after reaching their highest since August 21, 2024 on Monday.

COFFEE

July Coffee gapped higher early Wednesday following a sharp selloff on Tuesday that took the market to its lowest level in over a month. The Brazilian arabica harvest approaches, and it is expected to bring in a strong crop. Still, there are reports Brazilian farmers are holding back sales in the hope of seeing higher prices. The Brazilian real trading at its highest level against the dollar in more than two years reduces the incentive for producers to sell for export, but harvest pressure is waiting in the wings. World Weather Inc. says net drying is expected in most Brazilian coffee areas during the next week to ten days, but an erratic distribution of showers will continue to impact some locations from Parana to Bahia. ICE certified stocks fell 3,686 bags on Tuesday to 518,497 the lowest since March 2.

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