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Cocoa Corrects Overbought Condition


The cocoa market has corrected its overbought condition and is back to facing a very tight global supply setup. The market was higher overnight following an outside day higher on Tuesday. West Africa is in its rainy season, and this has cooled things off a bit, but growers stress the need for consistent rains with intermittent sunny spells. Earlier this week, growers in Ivory Coast were complaining about dry conditions persisting in most of the main growing regions last week. A record global production deficit is expected for the 2023/24 season, which ends in September. Citigroup said it expects a “balanced” market for 2024/25, as high prices lead to lower demand. They are looking for a global production surplus of 125,000 to 200,000 tonnes.

cocoa pods opened


After a 53.25-cent decline in less than three weeks, July coffee could be due for a corrective bounce. Fund selling has been the theme during the selloff, and the most recent Commitments of Traders report showed the managed money net long still holding near record highs as of last Tuesday. The market has fallen 24.50 since that data was collected, which suggests some of the burdensome net long has been liquidated. Hot and dry conditions in Vietnam led the rally this spring, and recent rains have improved the outlook somewhat, but dry conditions remain a concern. Vietnam grows robusta beans, and tight robusta supplies have lent support to arabica prices as well. Traders are also concerned that drier than normal conditions over Brazil’s major arabica growing regions will have a negative impact on their upcoming 2024/25 crop. After a one-day decline, ICE exchange arabica stocks increased 14,465 bags yesterday, taking them above 700,000 for the first time since April 2023.


July cotton is seeing choppy action ahead of the USDA supply/demand report on Friday, but it is also possible that the selloff since February has left the market in need of a weather premium. For the USDA report, a Bloomberg survey shows an average expectation for US 2024/25 cotton production at 15.73 million bales, with a range of 13.50-17.50 million. Exports are expected to come in around 13.14 million versus 12.30 million in 2023/24. Ending stocks are expected at 3.49 million versus 2.50 million in 2023/24 and 4.25 million in 2022/23. Ending stocks are expected to come in at 83.49 million, which would be up from 83.08 in 2023/24 and the highest since 2019/20. The US crop is starting off with strong expectations, with the planting pace ahead of last year and the 10-year average and US soil moisture conditions much better than the past two years. ICE certified stocks totaled 184,790 bales as of Monday, down 1,230 from Friday. They have increased by 183,000 since March 6 and are at their highest level since July 2017. Traces of banned Chinese cotton were found in 19% of a sample of merchandise selling at US and global retailers in the past year, despite a US law aimed at blocking imports of cotton linked to forced labor in China.


July sugar set back overnight after yesterday’s mild breakout of its three-week consolidation, but the breakout does suggest a further rally is possible. StoneX is forecasting Brazil’s Center-South sugar production at 42.3 million tonnes in 2024/25, which is close to a Unica forecast from earlier this year at 42.4 million. An analyst with Louis Dreyfus expects the global sugar market to show a small surplus of 800,000 tonnes in 2024/25 versus a surplus of 2.5 million in 2023/24. They say the outlook for Brazil is still uncertain due to drier than normal weather this year. Their current forecast is in line with the others at 42.5 million tonnes, but they also pointed out that cane yields from May or June onward will give a better estimate. They do not think the market is currently pricing in any potential problems in Brazil, despite the dry conditions there. The CEO of the world’s largest sugar trader, Alvean, said the recent drop in sugar prices to 19 cents was overdone considering the uncertainty regarding Brazil. The USDA’s Foreign Agricultural Service attache in Bangkok projected Thailand’s 2024/25 sugar production at 10.2 million tonnes, up from 8.8 million in 2023/24.


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