Another Setback for Cocoa

COCOA

The cocoa market has seen another setback from contract highs, and the market is technically overbought, but there is still no indication that a top is in place. A negative shift in global risk sentiment this week could spark some profit-taking, however. Excessive rainfall in West Africa has caused delays in the harvest, drying, and transport of cocoa beans during the mid-crop harvest, and that along with a global supply deficit forecast has help send cocoa prices to 7 1/2-year highs, but as the harvest approaches completion, the impact of further rains will be reduced. Instead, the extended period of rainfall could benefit the upcoming, 2023/24 main crop. On the other hand, wet and overcast weather could also lead to the spread of black pod disease for cocoa trees. The arrival of El Nino has also been a concern, as it could bring dry conditions to the region, but conditions have remained wet.

COFFEE

Brazil’s harvest continues to put pressure on the coffee market, but Colombia’s production is struggling to recover from La Nina, and this may help the market find a floor. September coffee has fallen below the late June low and has traded to its lowest level since January. Brazil’s largest cooperative, Cooxupe, said the harvest in the areas it operates had reached 34% of fields by June 30, up from 25% a year ago and the quickest pace since 2020, when it had reached 36%. Brazil’s main Arabica growing regions have dry weather in the forecast through late next week, with daily low temperatures above the mid-40’s Fahrenheit. The International Coffee Organization is looking for global coffee consumption to increase 1.7% to 178.5 million bags for the 2022/23 crop year, which is a slowdown from the 4.7% increase in 2021/22. They blame the slower pace of the world economy as well as inflation for the slowdown, especially in non-coffee producing countries, particularly Europe. A significant year-over-year increase in Honduran coffee exports last month reflects an improved production outlook for Central American nations since the start of the year has weighed on prices. The Brazilian real is down today, which also puts pressure on coffee as it could force producers to market their product more aggressively.

COTTON

Uncertainty regarding the fate of the Texas cotton crop could keep prices chopping around until the market gets a better idea of how the crop will turn out. Crop conditions are close to “normal,” but extreme weather this spring, starting with the drought from last year, then rain, then too much rain, hail, and extreme heat has left a great deal of uncertainty. December cotton was lower on Wednesday in the wake of the Crop Progress report on Monday that showed the Texas crop improving last week and very close to the 10-year average. Reports of heavy monsoon rainfall headed to India’s key cotton growing areas eases concern about their crop as well. The cotton market has seen a quick, sharp rally off last week’s six-month low last week that may have left it needing some bullish news to continue. China’s services PMI fell to 53.9 in June from 57.1 in May, the lowest reading since January. This raises concerns about Chinese demand for cotton. A hot and dry pattern for west Texas over the next couple of weeks could slow the crop progress and may be enough to send the market back to its April highs.

SUGAR

The strong pace of the Brazilian cane harvest, an improved outlook for India, and expectations for a strong sugar beet crop in Europe could limit further upside for sugar prices. Brazil’s Center-South cane growing regions are forecast to see dry weather through late next week, which should help minimize delays in harvest and crushing activity and help sugar production stay well ahead of last season’s pace. A turn lower in the Brazilian real could encourage producers to be more aggressive in marketing their product. India’s monsoon got off to a slow start, and as of last week rainfall totals were still behind their long-period average, but heavy rains are in the forecast this week, and growing regions are expected to receive normal rainfall this month. This should benefit their 2023/24 cane crop and help plantings for the 2024/25 crop.

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