Cotton Sharply Lower Overnight

COTTON

December cotton was sharply lower overnight after trading to its highest level in just over a year on Friday. US Crop conditions were close to record low levels as of last Monday, and a resumption of hot weather for the US reduces the chances of any significant recovery for the crop this season. The 6-10- and 8-14-day forecasts call for much above normal temperatures to continue, centered on Texas but less extreme in other regions of the south. There will be increased chances of precipitation, but that is not necessarily helpful, as it may be too late to help the crop’s development and it may damage open bolls. The demand outlook has been unencouraging, with US export sales for 2023/24 the lowest in several years.

COCOA

The cocoa market has been in an uptrend since last September, with prices rising 67% during that timeframe, but traders are starting to become concerned that the rally is losing momentum. Fund traders are holding a near record net long position, which leaves the market vulnerable to long liquidation. Declines in the Euro and British Pound last week and this morning put pressure on cocoa as it makes it more costly for European grinders. West African supply issues remain a major source of strength. The latest weekly Ivory Coast port arrivals total was below the same period last year, which keep their full season arrivals total behind last season’s pace as well. This season’s production has been hurt by a lack of adequate fertilizer and pesticide use, which has left the crops vulnerable to outbreaks of black pod and swollen shoot disease. El Nino could bring drier than normal conditions to west Africa and southeast Asia, which could lower production for the 2023/24 season, especially if it is strong. The International Cocoa Organization still expects this season’s global grindings to climb above 5 million tonnes for the first time on record, but they did reduce their 2022/23 estimate by 67,000 tonnes. This suggests that high prices are hurting demand.

COFFEE

Coffee prices continue to be pressured by strong production out of Brazil and Central America, but an improvement in out-of-home demand can help underpin prices. On Friday, December coffee followed through on Thursday’s negative reversal and finished with a heavy loss and was lower again overnight. Weaker global risk sentiment in front of the holiday weekend may have negatively impacted out-of-home coffee demand and put pressure on coffee prices. ICE exchange coffee stocks fell 1,355 bags on Friday, reaching their lowest level since November. The Brazilian currency is close to a 1 1/2-week low, which pressures coffee in ideas it will encourage Brazilian growers to market their supply to foreign customers.

SUGAR

Sugar’s abrupt turnaround on Friday and follow-through buying overnight have lifted prices to within striking distance of a 4 1/2 month high. The market is being driven higher by concerns over Asian production due to potential dry conditions brought on by El Nino. India may be heading for its lowest monsoon rainfall in 8 years after receiving record low rainfall in August that was 36% below the long-period average. September rainfall would have to be 10% above average to reach a “normal” monsoon amount this year. This makes it unlikely that India’s government will lift their ban on sugar exports before the second quarter of 2024. Thailand’s 2023/24 production is expected to have a significant decline from 2022/23 as well. Crude oil prices have reached a 14-month high and gasoline a 2 1/2 week high, both of which can provide support to the sugar market on ideas with will strengthen ethanol demand and possibly divert cane processing towards ethanol. However, high sugar prices limit the attractiveness of crushing cane for ethanol.

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