Dry Weather Helps Harvest
After falling 19% in four weeks, the coffee market could be set for a short covering rally. Dry weather over Brazil’s Arabica growing regions over the past few weeks helped their harvest make up for early delays, and some areas are now running ahead of last season’s pace. This has been a key driver in the price decline. The Brazilian currency bounced on Friday after falling to its lowest level in a month on Thursday, taking back most of its losses. This is supportive to the coffee market because it eases pressure on growers to market their coffee. Colombia’s June production came in at 956,000 bags, which was a 0.5% increase over last year, but this was only the third time over the past 12 months that their output has shown a year-over-year increase. Their 12-month production total (July 2022-June 2023) of 10.776 million bags is their second lowest 12-month total since November 2013. Vietnam’s Coffee and Cocoa Board said that their nation’s 2023/24 production could decline as much as 20% from this season due to drought and water shortages caused by El Nino.
September cocoa closed lower last week, and the market is overbought technically, but global supplies are tight, there are concerns about black pod disease in West Africa, and there has been no technical indicator that a top is in place. The market has made new contract highs in seven out of the last nine weeks and three out of the last four. Heavy rains this summer in West Africa have interrupted harvest at times and have increased the chanced of disease, but with most of the midcrop harvest complete, rainfall may be viewed as beneficial to the upcoming main crop, especially with El Nino threatening drier conditions later this year.
Lingering uncertainty over the upcoming crop and a less than promising demand outlook could keep December cotton in a generally sideways pattern for a while. The market drew some support on Friday when the dollar broke sharply and in one session gave up about a week and a half’s worth of gains. This lends a positive note to US export prospects in what is turning out to be a disappointing year for export sales. Cumulative sales for 2023/24 (new crop) have reached only 2.258 million bales, down from 4.449 million a year ago and the lowest new-crop sales for this point in the season since 2015. The US cotton crop is in much better shape than it was a year ago and is close to an average condition. As of July 3, 48% of the US crop was rated good to excellent versus 36% last year and a 10-year average of 49%. Texas was 34% G/E versus 17% last year and 36% on average. However, forecasts for hot and dry conditions in west Texas could start to reverse this process. For Wednesday’s USDA monthly supply/demand (WASDE) report, the average trade expectation for US 2023/24 cotton production is 16.53 million bales, with a range of expectations from 16.00 to 17.00 million. This would be up slightly from 16.50 million in the June report.
An outside day higher on Friday was technically supportive for the sugar market, but a lack of bullish supply developments has left it vulnerable to a resumption of its downtrend. October sugar finished last week with a gain of 74 ticks (up 3.2%), breaking a two-week losing streak. The market appeared to draw some support from rallies in crude oil and gasoline on ideas it could boost ethanol demand in Brazil and India. A sharp recovery in the Brazilian currency after a steep selloff the previous day was also supportive on ideas it would ease pressure on Center-South mills to produce sugar for export. Sugar’s share of Center-South crushing has been running above last season, and this has helped keep sugar production strong. Czarnikow put their 2023/24 Center-South production forecast to 38.2 million tonnes versus 33.73 million last season, citing good yields and a faster cane harvesting pace. The next Unica Center-South supply report will be released later this week, and it will reflect cane crushing and production totals for the second half of June, a timeframe that saw good harvest weather. Philippines has approved an additional import tranche of 150,000 tonnes to insure stable domestic supply and prices.
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