Cocoa Trades to 46-Year High

COCOA

March cocoa traded to a new contract (and 46-year) high overnight after a weekly report showed Ivory Coast cocoa arrivals falling further behind last year. Arrivals for the 2023/24 season, which began October 1, reached 612,000 tonnes as of December 10, down from 954,000 (-35.8%) from the same period last year. The gap between this year and last year keeps widening, from being down 35% on December 4, down 33% on November 27, and down 30% on November 20. At the beginning of the season, arrivals were expected to be down 28.5% for the first three months of the marketing year. The industry has been expecting a third straight annual global supply deficit in 2023/24, and so far, their expectations have been met if not exceeded. Major chocolate makers have been able to pass along a portion of their higher costs to consumers, and industry leaders are optimistic about demand growth in Asia despite high prices, due to the relatively low per capita consumption and the growing appeal of chocolate among consumers there.

COFFEE

March coffee spent last week well below the 6-month high from December 1, and it appears vulnerable to further downside price action this week. Reports that Indonesia will see their 2024 coffee production fall 6.7% below this year underpinned the market on Friday. Vietnam’s exports for the first 11 months of the year totaled 1.4 million tonnes, down 10.4% from the same period last year. However, November exports totaled 119,297 tonnes, which was up 172.8% from October. Honduras’ November exports were up 63% from last year, and Costa Rica’s were up 37%. Some of the increase was the result of a recovery in shipping after delays in October, but it also pointed to an improving Central American production outlook.

SUGAR

March sugar extended its recent selloff overnight but after being down for the sixth straight week last week, the market has become heavily oversold and could be vulnerable to a corrective bounce on any type of bullish fundamental news. The market is approaching a technical target at the 50% retracement of the rally from the low in October 2022 to the high this November. The UNICA report for Brazilian sugar production for the second half of November is due out early this week, and it could provide support if it shows a slowdown in. As of November 16, Brazilian sugar production for the 2023/24 marketing year was running 23.1% ahead of last year’s pace, and production for the first half of November was 30.92% ahead. India’s sugar production is expected to increase by roughly 2.5 million tonnes in 2023/24 due to the recent ban on using sugarcane juice for ethanol. In the USDA monthly supply/demand report on Friday, US sugar imports for 2023/24 were increased to 3.25 million short tons from 3.13 million in the November update. The stocks/use ratio increased to 12.8% from 12.4% in November, which was still short of the desired level of 13.5% that the USDA considers adequate. USDA also cut their forecast for Mexico’s 2023/24 production from 5.330 million tonnes to 5.283 million, and they lowered their forecast for US imports from Mexico from 1.199 million to 0.971 million.

COTTON

March cotton saw a brief rally upon the release of the USDA supply/demand report on Friday after US production and ending stocks came in below expectations, but the market quickly turned lower after it failed to push through key resistance at the 200-day moving average. The fundamental picture has improved slightly for cotton over the past weeks, but it may need further evidence of improving demand to extend its rally. The USDA report showed US cotton production for 2023/24 at 12.78 million bales, down from 13.09 million in the November report and below the low end of expectations. The average yield was lowered to 765 pounds/acre from 783 last month. Exports were left unchanged at 12.2 million bales, but domestic consumption was lowered to 1.9 million from 2.05 million in November. This pulled ending stocks down to 3.1 million bales from 3.2 million in November, which was below average expectations. World production was lowered to 112.92 million bales from 113.46 million last month, but consumption was lowered from 115.3 million bales to 113.73 million, leaving world ending stocks at 82.40 million bales versus 81.50 million last month.

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