Coffee Supply Outlook Improves

COFFEE

While the key growing areas in Brazil received precipitation over the last seven sessions, traders concern over dryness remains in place. On the other hand, the overall production outlook for the 24/25 season has improved and should leave the bear camp with an edge. However, global coffee stock levels remain tight but could be adequately factored into prices with the recent trade above 425. From a longer-term perspective, the trade expects overall supply to build slightly in the new crop from expanded Vietnamese production. According to Marex, coffee production will reach 172 million bags in the 2526 season which is up from 170.7 million bags. With Marex predicting global coffee consumption at 170.8 million bags, a small surplus of 1.2 million bags is now projected. In retrospect, the rejection of the rally last week, which coincided with a significant decline in trading volume, suggest prices above 400 are expensive. Furthermore, with the most recent COT positioning showing a noncommercial and nonreportable net long of 62,885 contracts, the coffee market is vulnerable to stop loss selling with a failure to hold support at 379.05.

SUGAR

While May sugar appears to have found support/value at the 18 cent level and has managed to “bounce,” the preponderance of market forces remains in favor of the bear camp. However, the production outlook has deteriorated in India, Brazil and Thailand which likely has created a shelf of support at the $0.18 level. Unfortunately for the bull camp, a portion of support for sugar came from the ongoing dryness in Brazil and recent precipitation has tempered supply side concerns there. On the other hand, with CIT, noncommercial, and nonreportable net long positions modest, it is possible the trade sees the $0.18 level as a near-term value zone. Last month’s sharp jump in global sugar prices of 6.6% resulted in a jump and a jump in overall global commodity food prices which in turn suggests the sugar rally was overdone.

COCOA

While May cocoa has managed to generally respect even-number support around $8,000 throughout last week, the range-down trade this morning shifts the path of least resistance down especially with global macroeconomic influences tempering cocoa demand prospects. Furthermore, Ivory Coast arrivals have reached 1.4 million metric tons for the season which is a 14.8% increase from the same period last year. The Commitments of Traders report for the week ending March 4th showed Cocoa Managed Money traders reduced their net long position by 2,119 contracts to a net long 14,763 contracts. CIT traders are net long 5,678 contracts after net selling 4,448 contracts. Non-Commercial No CIT traders net sold 501 contracts and are now net long 5,367 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 2,261 contracts to a net long 16,290 contracts. Apparently, the latest ICCO forecast (released late Friday) projects a global cocoa surplus of 142,000 tons for the 24/25 season which combined with bearish macro conditions and chart damage justifies this morning’s initial weakness on the charts. In a longer-term demand negative development Swiss chocolate maker Lindt is expected to announce a double digit percentage price increase which should rekindle price sensitive demand concerns. While futures prices have declined 33% from the highs, retail chocolate and chocolate candy prices remain historically high.

COTTON

Clearly, the cotton market is not concerned about significant demand losses from a developing US Chinese trade war as December cotton prices sit three cents above the low posted last week. Obviously, a plunge in the US dollar provided some support for cotton last week but the primary driving force for the rally was likely stop-loss buying from record short positions held by noncommercial/no CIT and noncommercial and nonreportable traders. The March 4th Commitments of Traders report showed cotton Managed Money traders hit a new extreme short of 79,957 contracts. Managed Money traders added 11,504 contracts to their already short position and are now net short 79,957. CIT traders reduced their net long position by 6,148 contracts to a net long 54,126 contracts. Cotton Non-Commercial No CIT traders hit a new extreme short of 78,470 contracts. Non-Commercial No CIT traders net sold 12,725 contracts and are now net short 78,470 contracts. Cotton Non-Commercial & Non-Reportable traders hit a new extreme short of 62,327 contracts. Non-Commercial & Non-Reportable traders net sold 18,338 contracts and are now net short 62,327 contracts. On the other hand, a strong weekly export sales tally last week gave buyers classic bullish fundamental demand evidence with exports jumping 25% from the prior week and up 28% versus the four-week average.

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