Coffee Struggles to Sustain Recovery

COFFEE

Coffee continues to have trouble sustaining a recovery move, as bearish supply factors weigh on prices. May coffee was slightly higher overnight after a selloff yesterday, but it has been in a sideways pattern since December. The buildup in ICE exchange Arabica stocks since the start of the year seems to be keeping a lid on the market. Stocks increased yesterday by 7,380 bags, bringing them to their highest level since October. There are more than 172,000 bags pending review. News that Brazil’s coffee exports were 58% above last year in February has also pressured the market this week. Tight robusta supplies after poor crops in Southeast Asia last year provide support to the Arabica market.

COCOA

May cocoa extended its rally overnight, as dire supply news has continued to emanate out of West Africa. A Reuters story reported that some cocoa plants in Ivory Coast and Ghana have either stopped processing or slowed down because they cannot afford to buy beans. State-controlled Ivorian bean processor Transcao, one of the country’s nine major plants, said it was still processing from stock, but it did not say what capacity it was running at. Other processors were reporting similar situations. This is further evidence that that the full implications of the poor crops have yet to be felt. A shift towards wetter weather over West African growing areas later this week may improve the prospects for the late mid-crop production.

COTTON

Last month, nearby cotton broke out above a long consolidation, which was a long-term bullish development, but the subsequent rally appeared to come too far, too fast. US supplies are indeed tight after the disastrous crop last year, and this puts a lot of pressure on the US to recover this year. Soil moisture conditions are much better than they were a year ago. As of last week, approximately 11% of US cotton area was experiencing drought versus 46% at this point last year. The improved conditions (and higher prices) could encourage heavier plantings this year, and the March 28 USDA planting intentions report should become a major focus for the market in the coming weeks. Yesterday, the industry trade group Cotton Australia raised its estimate for Australian production to at least 4.5 million bales from previous expectations of below 4 million. This has followed plentiful rains in the eastern and southern parts of the nation after a long dry period last year. One of the drivers of the rally in cotton since the start of the year has been a surprisingly strong pace of US exports.

SUGAR

Sugar’s late rebound on Wednesday helped the market to avoid a negative daily reversal, but the heavy selling that emerged off a slight revision in Indian sugar production suggest the bulls are less than convinced. The ISMA trade group raised its forecast for Indian 2023/24 production to 34.00 million tonnes from 33.05 million previously. This sill may not be enough for India may to end its current export ban. Drier than normal weather over Brazil’s major cane-growing regions the past few months is expected to negatively impact their upcoming (2024/25) cane crop. However, Unica reported that 28 of Brazil’s Center-South sugar mills are expected to restart their crushing operations during the first half of March versus 10 mills for the same period last year.

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