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Cocoa Another New Contract High


Cocoa’s rally has lifted prices to technically overbought levels, and with two days left before the end of the quarter, fund traders may be tempted to take profits, especially if they need to offset losses in other markets. The market has a bullish long-term outlook, with a projected global supply deficit for the second year in a row and El Nino threatening to make it a third. Recent rainfall (and flooding) in Ivory Coast and Ghana has interrupted the mid-crop harvest, and more rains are expected over the next seven days. This has helped send September cocoa to contract highs this week and the nearby contract to its highest levels in seven years. West African cocoa growing regions received moderate to high precipitations this past week, and there were more reports of flood in southern/western regions of Ivory Coast and Ghana.

cocoa pod close up


The coffee market continues to see pressure from bearish supply developments out of Brazil. The nation’s largest co-op Cooxupe said that their farmers had harvested 28% of this year’s crop as of last Friday versus 19% a year ago. This indicates that the harvest is well ahead of schedule and suggests that more supply will reach the main port facilities over the next few weeks, pressuring nearby futures. El Nino is expected to bring wetter than normal conditions to Brazil’s main Arabica growing regions, and this has boosted expectations for the 2024/25 crop. Mild temperatures so far this winter have helped as well. Colombia is expected to harvest 13 million bags in the harvest that starts in October, following a huge drop last year.


Cotton may be hesitant to press too far to the downside ahead of the USDA acreage report on Friday, especially now that the market has fallen to its lowest level since December. If the export sales report comes in strong this morning, it could spark short covering given the market’s oversold condition. Last week’s exports report showed net sales of 230,336 bales of cotton for the week ending June 15, which was up from 164,651 the previous week but down from 511,215 two weeks prior. China represented 76% of those sales.


October sugar has met an initial retracement target, which may lend temporary support to the market, but a strong Brazilian harvest, a possible reversal in the Brazilian currency, and new-found optimism regarding India’s production could limit any recovery bounce. India’s monsoon got off to a slow start and will finish the month with below average rainfall totals, but it surged this week and achieved full coverage earlier than normal, which bodes well for season totals. India’s cabinet has approved an increase in the floor price that sugar mills must pay for cane next season. This could encourage farmers to plant more cane, which could prompt the government to allow more exports.


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Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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