Cotton Ready for Bounce?
After three straight down days, December cotton may be ready for a bounce, especially with the monthly USDA supply/demand report looming on Tuesday. The strong dollar does not bode well for US exports, and weak Chinese economic data raises concerns about demand. The Chinese yuan fell to a 16-year low against the dollar yesterday, which makes US cotton that much more expensive for Chinese buyers. The weekly US Drought Monitor, released yesterday, showed that approximately 44% of US cotton production was within an area experiencing drought as of Tuesday, up from 37% the previous week and the highest since April 4. The drought expanded in some major production areas in west Texas and the panhandle. The report also stated that for the past two months, temperatures have averaged 4 to 8 degrees Fahrenheit above normal across most of Texas and Louisiana and southern Mississippi, which covers a large swath of US cotton production area. Texas is expected to see some rain over the next 7 days, and the longer-term forecasts show above normal chances, but it is getting to be too late in the season for rain to do much good. For the USDA supply/demand report on Tuesday, the average trade expectation for US 2023/24 cotton production is 13.57 million bales versus 13.99 million in the August report.
A bullish supply outlook that threatens to extend into 2023/24 continues to support a long-term bull trend in cocoa, but the market may be vulnerable today given a large net long position held by the funds and a technically overbought condition, especially if the negative risk attitude overnight extends into the North American day session. Cameroon’s Cocoa and Coffee Board announced that their 2022/23 cocoa production came in at 262,112 tonnes, down from 295,164 in 2021/22 and below the International Cocoa Organization’s estimate of 290,000. Exports were down 18.4%. Ivory Coast has announced it will send a delegation to the European Commission in Brussels on September 11 to discuss ways for chocolate multinationals to bear the cost of the EU’s new regulations requiring cocoa purchased by EU companies to not be grown on deforested land. Ivory Coast stated that securing an agreement would be a condition for resuming 2023/24 forward sales and starting contracts for 2024/25.
Coffee has seen choppy and volatile price action this month, as the market continues to have trouble sustaining a move in either direction. If global risk sentiment remains sluggish, prices could see a retest of their mid-August lows. Brazilian coffee exports are expected to increase over the next few months as this year’s Arabica crop moves to port facilities, and that continues to be a major source of pressure on the market. The International Coffee Organization reported that global Arabica exports totaled 6.220 million bags in July, a 6.5% decline from a year earlier. Cumulative exports for the 2022/23 marketing year (which started in October) were 10.3% behind the previous year. ICE exchange coffee stocks fell 9,508 bags on Thursday to their lowest level since November.
Sugar continues to draw support from bullish south Asian supply developments. Yesterday, a Bloomberg news story quoted an official at Thai Sugar Mills who stated that their nation’s 2023/24 sugar production could come in at 9 million tonnes, an 18% decline from 2022/23. India’s 2023 monsoon rainfall total so far is running 11% below their long-period average, which could negatively impact their next two cane crops. October sugar traded to a new contract high overnight, and the nearby contract is approaching the 12-year high from May. Czarnikow is projecting global sugar production to reach 177.9 million tonnes in 2023/24, which would be the second largest on record, but they also see global consumption at 179 million tonnes, an all-time high, which would result in a deficit of 1.1 million
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