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Cocoa Vulnerable to Selling?


July cocoa was higher overnight, as it seems the three-day selloff may have been enough to attract buyers. The negative shift in global risk sentiment this week does leave the market vulnerable to profit-taking, especially if this week’s low at 8702 fails to hold. Low expectations for the west African mid-crop harvest could also leave the market vulnerable to selling if the supplies come in better than expected, especially if arrivals start to improve. Analysts at Citi Research expect cocoa to trade in the $9,000-$10,000 range this month. They are looking for a 7-9% decline in grindings in the first quarter and a 4-6% drop in origin processing. Citi is calling for the 2023/24 deficit to reach 355,000 tonnes, which is 25,000 tonnes bigger than their previous forecast. They expect a balanced market in 2024/25 and a huge surplus in 2025/26. This contrasts with recent industry complaints of long-term structural issues such a lack of investment in tree stock and fertilizer, disease, EU deforestation restrictions, climate, and an ineffective market structure in producing nations.

cocoa pods


London robusta futures have backed off from their highs, but the low premium of NY (arabica) prices relative to robusta may limit the pressure on the NY futures. The nearby NY-London spread is near historic lows. Brazil exported 208,000 tonnes of green coffee in March, up 27.4% from 164,000 for the same period last year. Colombia produced 866,000 bags of washed arabica coffee in March, up 8.4% from March 2023. Exports totaled 1.01 million bags, up from 907,000 in March 2023. Production for the past 12 months has reached 11.4 million bags, up 3.4% from a year ago. Robusta prices have soared on a tight global supply situation, and traders are waiting for harvest to begin in Brazil and Indonesia. Brazil is the world’s second largest robusta producer, after Vietnam. ICE exchange arabica stocks rose by 11,535 bags yesterday to reach their highest level since May 2023. With RSI above 83, July NY coffee is technically overbought and vulnerable to a setback.


Old crop cotton appears to be under pressure this week from expectations of strong crops out of Brazil and Australia and lackluster US export sales. The USDA recently revised Australia’s crop higher. This week’s export sales report showed US cotton sales for the week ending March 28 at 84,910 bales for the 2023/24 (current) marketing year and 22,869 for 2024/25 for a total of 107,779. Cumulative sales for 2023/24 have reached 94% of the USDA forecast for the marketing year versus a five-year average of 100% for this point in the season. This suggests that USDA could lower its 2023/24 export forecast in upcoming supply/demand reports. December cotton was lower overnight and fell below a the 50-day moving average, which is key technical support. The weekly US crop monitor showed approximately 8% of US cotton production was in an area experiencing drought, up from 7% the previous week but well below 46% from a year ago.


The prospects of India allowing sugar exports this year put some mild pressure on the market this week, but expectations of lower output from Brazil have provided support. The trade is awaiting early results of the Brazilian harvest, which is just getting underway. The dry conditions of the past several months have lowered expectations, but they may also lead to a fast start. In recent years, a spike in crude oil prices such as the one currently occurring would be viewed as supportive to sugar on ideas it would boost ethanol demand, but high sugar prices are expected to keep mills more focused on crushing for sugar than ethanol.


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