Cotton Slides on Crude Drop

COTTON

July Cotton was sharply lower early Wednesday on the back of a steep break in crude oil off the latest draft proposal from the US to Iran for ending the war and reopening the Strait of Hormuz. The draft as written seems to be modest enough to perhaps increase the chances of an agreement. Crude oil prices collapsed on the news, and this pulled support from cotton on ideas lower crude oil prices reduce the cost of producing polyester. Reopening the strait would also open the door for cheaper fertilizer prices, which would help production around the world. Much of the US cotton producing area is still under drought, though some relief is being seen this week. The Delta is getting rain. West Texas has gotten some but needs more. The southeast even got some. The maps for Thursday and Friday show the rain/thunderstorms over the southeastern quadrant of Texas, the southern Delta and most of the southeastern US. However, much of west Texas appear to miss out.

COFFEE

July Coffee was near unchanged early Wednesday and towards the middle of Tuesday’s range. The market rallied to its highest level in seven sessions early Tuesday but settled well off the day’s high. It has been chopping back and for the past couple of months as it waits for what is expected to be a very strong Brazilian crop to be harvested while dealing with a relatively tight old crop supply. Price breaks have been bought and rallies have been sold. The Brazilian real was higher again on Tuesday, reaching its highest level since March 2024, and this reduces the incentive for Brazilian producers and roasted to price beans for export. Uganda’s ministry of agriculture say the nation exported 671,152 bags of coffee in March, which was +2.9% from the same period last year. Uganda is Africa’s largest exporter of coffee, followed by Ethiopia.

COCOA

July Cocoa was higher early Wednesday, trading to its highest level since February 9. The market has broken out above a two-month consolidation area this week, leaving some to suggest that the move has sparked some short covering. As of last Tuesday, money managers were net short almost 20,000 contracts of NY cocoa. It is also possible that demand expectations are not as dismal as they have been in light of Asia’s 1^st quarter grind data released last month showed an increase over year ago. Confectioners have been working through high priced supply leftover from the historic rally, and perhaps they may start to feel comfortable lowering retail prices if they now have lower-priced cocoa available. The west African mid-crop is expected to be strong, but lower Ivory Coast arrivals data this week and some reservations expressed by farmers there may have raised some concerns.

SUGAR

July Sugar was sharply lower early Wednesday with the collapse in crude oil prices off the news of a draft proposal for peace with Iran. A pullback in crude oil and especially gasoline would lower the incentive to produce ethanol from sugar cane. The sugar market had seen a substantial rally off the April low, and today’s setback  gave back 505 of those gains. Brazil is already moving towards a greater emphasis on crushing cane for ethanol this year, and Brazil’s president recently confirmed that they will increase the ethanol mix in gasoline to 32% from the current 30%. The Brazilian real has reached its highest level since March 2024, which encourages domestic consumption (in the form of ethanol) and reduces the incentive to export (in the form of sugar). The University of Sao Paulo’s research center CEPEA said in a note on Monday that sales of hydrous ethanol in Sao Paulo, Brazil’s largest fuel market, increased 25% in April from a year earlier El Nino could lower global cane production prospected later this year or in 2027. India has already lowered its 2026 monsoon forecast to below average, following two years of above average. However, it remains to be seen if this will hurt Indian cane output this year.

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