Coffee on Track for Weekly Reversal

COFFEE

At the high overnight, coffee prices had rallied 9.45 cents above Wednesday’s 8-week low (up 5.4%), putting them on track for a positive weekly reversal. If global risk sentiment continues to improve, the market could extend its recovery into the weekend. July coffee followed through on Wednesday’s reversal with a strong gain on Thursday, and it held its own overnight. ICE exchange coffee stocks fell by 9,075 bags on Thursday to reach their lowest level since November. The drawdown has given a boost to prices as it reflects some improvement in demand. The Brazilian currency followed through on Wednesday’s rebound with a moderate gain on Thursday, and that provided carryover support to the coffee market on ideas it would ease pressure on Brazil’s farmers to market their crops to foreign customers. Honduran coffee exports during May were 79% above last year’s total. Updated weather forecasts have mostly dry weather over Brazil’s major Arabica growing regions through the end of next week, which should help their current harvest make up for a slow start this year.

COCOA

The cocoa market has seen coiling action since putting in a negative key reversal on May 22, and this could be setting the market up for another leg higher, as “consolidation” often means “continuation.” The bulls may have been disappointed with the market’s failure to take out last week’s contract highs yesterday in in the face of supportive supply news out of the ICCO this week and a risk on attitude across the commodity markets. There have been some positive demand developments to add to the bullish supply outlook. Reports yesterday showed May Euro zone year-over-year CPI at its lowest level since early 2022 and 4.5% below the October reading. This is viewed as supportive to cocoa on the idea that European consumers will be more inclined to purchase discretionary items such as chocolate if inflation is coming under control. This season’s Ivory Coast cocoa bean exports were running 7.8% behind last season’s pace at the end of April, but cocoa product exports were 3.4% higher. Ivory Coast grindings are expected to reach a record high this season.

COTTON

The cotton market has been in a sideways pattern since November, and it is approaching the upper end of the range. A weaker dollar sent cotton prices higher on Thursday, and even the December contract gained despite improving growing conditions in west Texas. The dollar broke a key support level and looked technically week, which could support US cotton exports. Comments by some Fed officials that they may consider skipping a June rate hike and a weaker than expected ISM Manufacturing Index have pressured the dollar. Traders will be looking to the weekly USDA export sales report on Friday for clues on how cotton exports are faring.

SUGAR

The sugar market has been unable to capitalize on a general risk-on attitude late this week, as bearish supply fundamentals seem to have taken hold. The market could be on track for its fifth negative week in a row. July sugar poked through last week’s low overnight to trade to its lowest level since April 24, and that level, 24.59, could be critical support today. The Brazilian cane harvest and crush activity are running well ahead of last year’s pace following an earlier than normal start, and that continues to be a source of pressure on sugar prices. Reports that India’s monsoon has started to move forward again after stalling for 11 days is another source of pressure, as that is expected to bring rainfall to India’s mainland over the next few weeks. The delay could result in India’s June rainfall coming in below average, but updated forecasts still call for their full season (June through September) rainfall to be 96% of the long-period average, which is in the “normal” category.

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