Cocoa Uptrend Remains

COCOA

September cocoa traded to a new contract high yesterday, rejecting Tuesday’s key reversal and keeping the 10-month uptrend intact. Bullish supply developments continue to fuel the rally. Several cocoa producing nations in West Africa are working to adjust their pricing mechanisms in reaction to new EU rules regarding the sourcing of beans. These rules require export firms to prove that their cocoa beans did not involve child labor in the harvesting and drying and that they were not grown on deforested land. The added expense of ensuring the traceability of their cocoa beans has been a key factor in West African nations moving forward on the new pricing mechanism. Ivory Coast and Ghana were the first to discuss the changes, but there is talk that Nigeria and Cameroon would be involved as well. These four nations account for 70% of global cocoa production.

COFFEE

September coffee has been in a coiling pattern, but it has held last Wednesday’s 9-week low, and if there is a rebound in global risk sentiment, it could extend its recovery move. ICE exchange stocks fell another 2,094 bags on Wednesday; their steady declines have underpinned the market this week. Colombia’s annualized production pace has fallen to a nine-year low, and this provides underlying support to the market. The USDA has projected Brazil’s 2023/24 Arabica production at 44.6 million bags, which would be up 12% from 2022*/23. However, their robusta output is expected to fall 5%. There has been a growing consensus that Brazil’s 2023/24 “off-year” crop would come in above the previous season’s “on-year” crop, but many trade forecasts do not expect that large of an increase this year.

COTTON

The cotton market may have an opportunity to break out of its choppy trade pattern in the next couple of days with the US export sales report today and the monthly supply/demand report on Friday. Last week’s export report showed net sales of 344,328 bales for the week ending May 25, up from 215,549 the previous week and the highest they had been since February 16. China was a noted buyer of 230,544 bales, their biggest purchase in almost a year. Trader expectations for the USDA supply/demand report on Friday are leaning bearish. Soil conditions in west Texas showed a reduction in drought intensity last week, but hot and dry weather in the forecast for the region may make it difficult for further improvement. Last week’s drought monitor showed about 28% of US cotton production was in an area experiencing drought, most of it in west Texas.

SUGAR

Since it put in a negative daily reversal on May 11, sugar market made four attempts at a recovery with each one failing and until the market sees some sort of bullish supply development, we would expect it to continue to work lower. India’s monsoon is not expected to arrive over the mainland until Friday. This would further delay the planting of sugar cane and result in less than normal rainfall this month. The India Meteorological department has been maintaining the position that overall rainfall from this year’s monsoon will be close to normal, but the arrival date keeps getting pushed back. In Brazil’s Center-South region, and dry weather is helping harvest and crushing operations to move ahead of last year’s pace. Brazil is expected to see a significant increase in sugar production this season.

Interested in more futures markets?  Explore our Market Dashboards here.