Export Sales in Focus Ahead of USDA Report

COTTON

December Cotton was lower overnight after backing away from a brief rally yesterday. Traders are anxious to see if today’s export sales report comes in strong for the second straight week, but the USDA supply/demand report on Friday may limit any to exports today. Analysts’ forecasts call for slight increases in US production and ending stocks in the USDA reports, but the range of expectations in pretty wide. US crop conditions slipped a little in August, but they were starting from a strong level, and the conditions report this week showed them bouncing back. Texas, the biggest producer, has 48% rated good/excellent versus a five-year average of 28%. A bigger concern may be US export prospects, and we suspect that the weekly export sales reports will be a greater focus in the weeks ahead unless the production numbers show a surprise.

COCOA

The cocoa market  has been drifting lower since mid-August, as the market awaits the arrival of the West African main crop. Traders appear to fear the prospects of lower demand a bit more than the possibility of a crop problem but not enough to test the lows in July that came in the wake of the poor 2^nd quarter grind data. There have been some farmer complaints about black pod disease in Ivory Coast, but they have not been widespread. “Ideal” cocoa conditions would mean ample rain and ample periods of sunshine, and some growers have complained about overcast skies and cooler than normal conditions. It has also been on the dry side for the past several weeks, but that appears to be changing. World Weather Inc expects increased showers and thunderstorm activity through the next week from Ivory Coast to southern Benin.

COFFEE

Brazilian coffee exports to the US fell 46% in August, but there were strong sales to Germany and sharp increases in sales to Colombia and Mexico. Cecafe reported this week that US imported 301,099 bags in August, down from 562,723 bags a year earlier. Germany was the biggest importer for the month at 414,109 bags, followed by Mexico at 251,166 bags (+90% from a year ago) and Colombia at 112,948 (+578%). The Cecafe President said that there was little chance that the beans could be re-exported to the United States because such action would be easy for the American government detect, but why the sharp increase in Brazilian exports to Mexico and Colombia? Regardless, Brazil’s total arabica exports were down 11.2% from year ago levels in August, which suggests producers are holding back as they wait for court cases over the legality of the US tariffs to be settled. The case appears headed for the Supreme Court. If the Court decides the tariffs are illegal, it could send break the market, but that is a tenuous proposition. If the Court decides the tariffs are legal, Brazilian growers may be forced to sell anyway. It is a bit early in the season for coffee growers in Brazil to be too concerned about the dry conditions, as there is still time for ample rains to develop ahead of the flowering season.

SUGAR

March Sugar was slightly lower overnight following an impressive three-day bounce off contract lows. The market had reached oversold levels, and the funds were loaded up on the short side, leaving the market vulnerable to short covering. There have been some unconfirmed reports of fires in Brazilian cane fields. Similar occurrences last year may have contributed to the smaller crop this year. Last year’s fires followed an unprecedented drought, and while conditions have been seasonably dry lately, there have also been periods of decent rain. Brazil’s sugar output improved during the first half of August. Unica will likely release its report on the second half of the month tomorrow or early next week.

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