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Cotton Faces Liquidation Pressure


July cotton fell to its lowest level since November 10 yesterday as it faced long liquidation pressure despite an improvement in weekly export sales. The US Drought Monitor indicated that approximately 9% of US cotton production was in an area experiencing drought as of April 16, down from 11% the previous week, 40% a year ago and 55% two years ago. This points to a decent start for the US cotton crop. US cotton export sales for the week ending April 11 came in at 146,112 bales for the 2023/24 (current) marketing year and 80,077 for 2024/25 for a total of 226,189. This was up from 117,161 the previous week and was the highest since February 1. Cumulative sales for 2023/24 have reached 96% of the USDA forecast for the marketing year versus a five-year average of 101% for this point in the season. This suggests the USDA could lower its export forecast in upcoming reports. Crude oil spiked higher overnight on reports that Israel retaliated against for Iran after their strike over the weekend, but the market eased back as it appeared that Israel had acted with some forbearance.


North American first quarter cocoa grindings came in at 113,683 tonnes, up 3.7% from a year ago, which was in sharp contrast to trade estimates calling for a 4% to 8% decline. This was also the first time since the third quarter of 2021 that grindings were above year ago levels. This followed better than expected numbers from Europe and Asia yesterday, and the cocoa market responded with a gap higher overnight and a move to new contract highs in the July contract and all-time highs on the nearby chart. As reported yesterday, European first quarter grindings were down 2.2% from last year versus estimates calling for a 3-6% decline, and Asian grindings were down just 0.2% versus expectations calling for a decline of 8%.


July coffee was higher overnight and managed to take back some of its losses from yesterday’s wide sweeping reversal lower from a new contract high. However, given the magnitude of the gains this month, the market could see additional long liquidation or profit taking. The NY arabica market is being led higher by the tight supply situation in robusta coffee, with recent downgrades in forecasts for 2024/25 Vietnamese production following a 20% decline in their output in 2023/24. Reports of a sharp increase in Brazilian robusta exports last month have eased some of those concerns about the tight supply. The negative shift in global risk sentiment this week may have also lowered expectations for restaurant and retail shop consumption. ICE exchange arabica stocks increased by 4,254 bags yesterday to 635,110, and they are approaching an 11-month high.


After a brutal start to April, sugar prices have benefited from some bullish supply/demand news and have lifted clear of Wednesday’s one-year low. The Brazilian government agency Conab cut their 2023/24 nationwide sugar production estimate by 1.2 million tonnes to 45.7 million, which is still a record. They increased the 2023/24 Brazil cane crop estimate by 35.6 million tonnes to a record 713.2 million and raised ethanol production by 1.56 billion liters to 35.61 billion. This shows an upward shift in ethanol demand and a possible downward shift in cane yields. Reports earlier this week indicated that the 2024/25 production was off to a decent start, but the dry conditions over the past few months are expected to eventually pull cane yields down. Thailand’s Sugar and Cane Board said it expects their nation’s 2023/24 sugar production to total 8.71 million tonnes, down 21.2% from 2022/23. The Brazilian real has traded sideways after a collapse to its lowest level since October earlier this week, and that has helped stabilize the sugar market. Lower currency values encourage Brazilian producer selling, and traders will be watching the currency closely, as a resumption of the downtrend in the real could spark a similar action in sugar.



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