More Hot and Dry = More Gains

COCOA

With yesterday’s new high for the move, an expanded range, a temporary trade below the prior session’s low and a close near the low of the day yesterday the charts suggested some caution by the bulls is warranted. However, in addition to unrelenting concerns of production losses at the Ivory Coast and Ghana, the trade has begun to extend production concerns into smaller producers like Ecuador, Peru and even Southeast Asia. In fact, the current industry assessment of potential production losses beyond the major West African producers has been pegged at a material 100,000 tons! As we indicated yesterday markets embracing El Nino can be enveloped in the theme and can rush to factor in “potential” production losses on minimal incremental evidence.

COFFEE

The coffee market continues to discount the potential bullish impact from El Niño, with prices extending a protracted consolidation in the face of strength in cocoa, sugar, and cotton. However, the coffee market is facing a wall of supply flowing from Vietnam which in turn leaves the market in a less vulnerable supply condition than cocoa or sugar in the face of the El Nino phenomenon. It is also likely that incoming supply flow from harvests has checked incoming El Nino speculative trading and has also kept local cash prices partially insulated from potential speculative forces flowing from futures. On the other hand, some Brazilian harvest progress is running behind schedule from rain and that has provided lingering support to some local prices.

COTTON

While yesterday’s aggressive spike up extension to the highest level since May 18th leaves the market short-term technically overbought, supply fundamentals are likely to continue to push prices higher. Not surprisingly, adverse weather following sustained hot and dry weather in the very important West Texas region has prompted another wave of quality concerns. Those quality concerns were clearly substantiated by notable declines in weekly USDA “good to excellent” cotton ratings and from a notable increase in “poor to very poor” cotton ratings released earlier this week. The USDA reported good to excellent cotton at only 42% which is the lowest good to excellent reading since the fourth quarter of 2024. It should also be noted that West Texas cotton areas have not yet transited the most difficult seasonal production timeframe.

SUGAR

With Indian sugar prices hitting a new record overnight on fear of tightening domestic and global supply, and from strong festival demand, it is surprising to see US prices holding below Tuesday’s high for a second straight trading session. However, strong Indian prices appear to have traction with tightness expected to be “entrenched” over the next “three months”! As we indicated earlier in the week Indian companies dealing in sugar saw significant stock price gains in a potential confirmation of an environment of sustained high sugar prices and strong sugar demand. Furthermore, Indian sugar analysts are already fretting over the prospect that beginning of the new season stocks (October 1^st) will see a decline of 3.5 million tons which in turn projects inventories to reach three decade lows.

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