Brazil Dryness Concerns Coffee Trade

COFFEE

May Coffee gapped higher overnight as the trade remains concerned about the drying trend that has developed in Brazil. World Weather Service says that an unexpected ridge of high pressure has affected coffee areas over the past couple of weeks, ending a very wet period and bringing on much drier weather. They do NOT expect the ridge to hold in place long enough to make dryness a chronic problem. However, they also said that the diminishing influence of La Nina may reduce some of the rainfall that was previously expected. This may keep precipitation in center west and center south Brazil a little lighter than usual and could deplete topsoil moisture and begin stressing crops. A crop quality decline is possible if this pattern lasts well into March.  Safras & Mercado said this week that Brazilian farmers sold 88% of the 2024/25 crop so far, ahead of the 79% last year at this time and the five year average of 82%. ICE certified arabica stocks decreased by 66,269 bags yesterday to 758,514, the lowest since last May. It was also the biggest one-day decline going back to at least last March. The amount pending review increased yesterday by 12,175.

SUGAR

After a disappointing close yesterday, May Sugar is back approaching a key technical resistance at the 100-day moving average. Diminishing prospects for Indian production and dry conditions in Brazil are suggesting the global supply will not recover as quickly as previously expected. Reports last week that Indian mills were closing earlier than normal were the first indication that Indian exports may not reach the quota of 1 million metric tons. Traders blame dry conditions, but they also report that higher domestic prices are pulling sugar away from the export market. An unexpected high pressure ridge has resulted in lower rainfall amount in center-south Brazil over the past couple of weeks, and World Weather Service says dry conditions could continue for the next week to ten days and could begin to cause crop stress if the dry conditions extend into March.

COTTON

May Cotton is lower today after failing to close above the 50-day moving average yesterday. More tariff talk overnight may be putting some slight pressure on the stock market, and this is not supportive to cotton. The dollar was higher overnight, which was also slightly negative. Drier weather in Brazil is helping the soybean harvest proceed, which will also help the planting of Safrinha cotton there. Traders may have been disappointed that the market could not hold its gains from the news over the weekend of National Cotton Council’s survey of growers indicating US cotton planted area could fall 14.5% from last year. West Texas will need rain ahead of planting season, and the 8-4 day forecast does show above normal chances of rain for the region. US weekly exports have improved over the past few weeks, but they are not breaking any records.

COCOA

May Cocoa is near unchanged this morning after a modest recovery rally yesterday. The weather pattern in West Africa suggests that the rainy season is developing gradually, which is not unusual. Ghana saw some light to moderate rainfall over the past 24 hours, while Ivory coast was dry. World Weather service expects rains to continue periodically through the next week to ten days. The trade is waiting to see how the rainy season develops to get a better idea of how mid-crop production will fare. Growers in Ivory Coast said this week that one more “decent’ rain event is need to induce strong pod growth. ICE warehouse stocks increased by 2,507 bags yesterday to 1.386 million. The net change for the past week shows a relatively small decline of 351 bags. The ICCO will release its first official estimate of 2024/25 production at the end of the month.

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