Coffee Prices Lack Upside Momentum

COFFEE

Coffee prices continue to have trouble sustaining upside momentum, but with the potential for improved demand, the market could be supported on a near-term pullback. The “risk on” mood seen in global equity markets this week suggests a more upbeat economic outlook that would support out-of-home coffee consumption. ICE exchange coffee stocks fell 320 bags on Monday and remained on-track for their third lowest month-end total since 1999. Prices are pressured by expectations that Brazil’s 2023/24 Arabica production will come in above 2022/23. Their major growing regions saw above average rainfall last week, which will delay what is left of the harvest but benefit 2024/25 output. Colombia’s production had been expected to improve with the end of La Nina earlier this year, but their output has remained close to 9 1/2-year lows.

COCOA

Cocoa saw more upside follow-through overnight and traded to its highest level since the contract high day on August 7. London cocoa reached a 46-year high. An improvement in global risk sentiment is viewed as supportive to chocolate demand. The ICCO’s third quarter update is expected to be released this week, and traders are looking for it to show an increase in the global supply deficit for 2022/23 from the 142,000 tonnes in their last update. This would be the second deficit in a row, and El Nino threatens to bring a third deficit for 2023/24. Rains were below average last week in Ivory Coast’s main cocoa growing regions, but soil moisture content was reportedly still high enough to help strengthen the October-March main crop. The dry weather trend could become a concern if it persists, as this would be an indication that El Nino is taking hold.

COTTON

The fact that the weekly Crop Progress report showed the US cotton crop improved last week may spark some selling, but it may be limited because the crop is in such poor condition. The market held up overnight in the wake of the report, trading inside yesterday’s range. The report showed 33% of the US crop was rated good/excellent as of August 27, unchanged from the previous week but down from 34% a year ago and below a 10-year average of 50%. The record low is 30% from 2011. Texas was 12% good/excellent, up from 10% the previous week but down from 14% a year ago and a 10-year average of 38%. This is a new record low, beating the previous record of 14% from 2022. The near-term forecasts call for little or no rain in west Texas and above normal temperatures. Georgia and the Carolinas are expected to see heavy rains, which they do not need. The 6-10- and 8-14-day forecasts call for above normal temperatures across the eastern two-thirds of the continental US, with below normal chances of precipitation in most of the cotton growing areas. The Coastal Bend region of Texas has near normal chances of rain, which they need. We are approaching a point where rain is not helpful because it can damage open bolls. Chinese demand is a major concern, and those concerns were given more fuel with the news yesterday that profits at China’s industrial firms fell 6.7% in July from a year earlier.

SUGAR

While the sugar market may be heading for a retest of its second quarter highs, it may need to see a bullish shift in Brazil’s supply outlook before it can climb above the 12-year highs from January. India is not expected to allow any sugar exports during the 2023/24 season, which starts in October, and this has underpinned prices this week. El Nino weather appears to be negatively impacting India’s rainfall already. Their rainfall this month is expected to be their lightest for any August since at least 1901, and September is expected to come up short as well. This would result in the lowest full-season monsoon rainfall total in eight years, which would have a negative impact on the 2023/24 and 2024/25 cane crops.

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