Cocoa Waits for Rain

COCOA

May Cocoa edged higher overnight but came up short of testing the 50-day moving average that it fell below last week. The market has seen a bounce off Friday’s six-week lows this week, aided possibly by comments from Ivory Coast producers that a lack of rain in most of the nation’s cocoa growing regions could delay the start of the April-September midcrop and potentially lead to a shortage of beans. West Africa has seen an increase in rain events recently, and World Weather Service is calling for occasional showers through the next week, but that most of the rain would be light to locally moderate. They reported only some light rainfall in a small area of southwestern Ghana over the past 24 hours. ICE warehouse stocks fell 11,782 bags on yesterday to 1.387 million, their lowest since January 31.

COTTON

May Cotton was higher overnight following a positive reaction to yesterday’s USDA supply/demand report. On its surface the report was slightly bearish against expectations, so the subsequent rally was a bullish development. The report showed a slight, 100,000-bale drop in US consumption and a slight increase in ending stocks for 2024/25. Brazil’s production was increased by 100,000 bales and China’s by 1.0 million. The fact that USDA kept US exports steady was viewed by some as friendly. However, that move should not have been a surprise given USDA had already lowered exports the previous month. The US cotton stocks/use ratio is 38.6% versus 37.5% last month and 23.2% last year. The dollar was lower yesterday despite Jerome Powell saying the Fed was in no rush to cut short term rates, and the weaker currency was viewed as supportive to US export prospects. World Weather Service said eastern Australia could see some beneficial rains. Crude oil is lower this morning, which may undercut support for cotton.

SUGAR

May sugar extended its rally overnight to trade to its highest level since December 18. The market also pushed above the 50-day moving average for the first time since mid-November. Unica will release its update on Brazilian center-south sugar production for the second half of January today. The last report showed cane crush for the first half of January was 60.5% below the same period last  year, with sugar production 79.3% lower and ethanol production up 16.4%. Cumulative crush for the 2024/25 marketing year (April-March) was running 4.9% below a year ago, with sugar production down 5.5% and ethanol production up 3.2%. Brazilian crushing is mostly over for the season, but if dry conditions emerge, it could revive some activity provided there is enough mature cane available. France’s second-largest sugar maker Crustal Union said on Wednesday it produced 1.5 million metric tons of sugar in 2024/25, up from 1.3 million tons it had reported for the previous season. In yesterday’s WASDE report, USDA lowered up 2024/25 sugar production to 9.370 million short tons from 9.404 million in the January update, a drop of 34,000. Beet production was increased by 15,000 tons, but cane production fell 49,000 tons on lower sucrose recovery in Florida. US consumption fell 75,000 tons, and US ending stocks fell 26,000. Mexico’s 2024/25 production was lowered by 235,000 tons. India’s joint secretary for sugar and department of food and public distribution reiterated today that the nation will remain in the sugar export market this year. India last month allowed exports of 1 million metric tons of sugar during the current season to September. World Weather Service said Brazil sugarcane areas are expected to dry out in Sao Paulo and areas north into Minas Gerais as well as some minor areas to the north. They added that if dryness prevails into March, sugarcane tonnage for 2025/26 may be reduced, although sucrose levels may rise, leaving open for debate the impact on overall production.

COFFEE

May Coffee is higher this morning but is also inside yesterday’s wide range. The market opened at new all-time highs yesterday (for the 12^th straight session) and then sold off sharply, but it did manage to hold Monday’s low to avoid a classic “key reversal” lower signal. Citi said in a note that prices have likely peaked as demand starts to curtail and supplies replenish. That may be an early call, but clearly this idea is on traders’ minds given the selloff yesterday. There has been no technical indicator of a top, but the market is had reached an overbought technical level, and the funds are loaded up on the long side, leaving coffee vulnerable to a selloff if support levels are taken out. World Weather Service expects a dry trend for Brazilian coffee areas to stay in place for the next week to ten days. Soil conditions are already drying out in Bahia, northeastern Minas Gerais and Espirito Santo, although those areas have some irrigation available. Crop areas from Cerrado Mineiro and Zona da Mata through Sul de Minas into Parana will slowly dry down over the forecast, raising the potential for crop moisture stress late this month and that might eventually threaten cherry development. They opined that weather conditions up until now have not been bad enough to support the recent run on prices, although crop conditions and production could be impacted if the dry bias were to last through the end of the rainy season. The big word here is “if.” ICE certified arabica stocks increased by 15,862 bags yesterday to 857,129. Stock levels have been chopping back and forth recently, and they are up 2,176 bags over the past five sessions.

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