Brazil Harvest Lags
Rainfall over Brazil’s major Arabica growing areas this week may lead to a wave of flowering that will be beneficial to next year’s crop. A forecast for mostly dry weather with warm temperatures in through late next week could negatively impact trees. December coffee was lower overnight but stayed inside Wednesday’s range. The market has carved out a 9.5-cent trading range so far this week, but it has also managed five closes in a row above the 200-day moving average. This month’s sharp decline in ICE exchange coffee stocks has been a major supportive factor this week, with Monday’s decline of 8,554 bags taking them to a new multi-year low.
December cocoa gained ground overnight despite a weaker euro. The market has been fairly resilient this week, holding its ground above the 200-day moving average after testing that level on Tuesday. Ongoing concerns about West African output remain a supportive force, as recent weather is expected to negatively impact the region’s main crop output. Recent scattered showers offered some relief, but moisture deficits persist.
China’s aggressive grain buying recently has calmed some traders’ concerns, as they view it as an indication that the Phase 1 deal is still in place. However, it is important to keep in mind that the supply/demand outlook for cotton is bearish. The USDA is forecasting US and world ending stocks for 2020/21 to be the highest in several years, even accounting for a 27% abandonment rate in Texas. Last week’s export sales report (data as of August 6) showed net sales of 6,891 bales of cotton for 2020/21 and 8,800 for 2021/22.
Sugar prices were slightly lower overnight with the stronger dollar and weaker crude prices, but on the whole they held firm, up near their recent highs. After a slight downside breakout earlier this week, the market has regained upside momentum without much carryover support from key outside markets. Increasing concerns that Thailand will see 10-year low in production for the 2020/21 season has provided underlying support to the market, and it has helped offset a moderate decline in the Brazilian currency and lukewarm energy prices.
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