Fourth Largest Delivery on Record

SUGAR

July sugar sold off yesterday and again overnight, but it has managed to hold above last week’s 12-month lows. A strong start to Brazil’s Center-South harvesting and crushing this season continues to be a source of pressure. The expiring May ICE Sugar 11 contract saw roughly 1.67 million tonnes delivered against it, which would be the fourth largest delivery on record. Large deliveries are usually seen as bearish, as it suggests there is no better deal to be had in the cash market, but there were two large producers among the receivers, which suggests there is demand as well. Weaker energy prices, with crude oil falling to the lowest level since March overnight, lowers the incentive to crush cane for ethanol. That and a selloff in the Brazilian real may encourage mills to produce more sugar for export.

COFFEE

July coffee was slightly lower overnight following yesterday’s steep selloff. Reports of extreme heat in southeast Asia raise concerns about upcoming robusta crops, but the NY futures remain under the influence of a reversal top from April 18. The market also fell below the 21-day moving average for the first time since late March. Funds were holding a near-record net long position as of the recent Commitments of Traders report, and this left the market vulnerable to heavy selling as support levels were taken out. A negative shift in global risk sentiment may have also dampened the demand outlook. After Tuesday’s close, Starbucks reported lower than expected earnings and revenue in the first quarter, and this could reinforce concerns about lukewarm out-of-home demand. A more than 1% decline in the Brazilian real may encourage Brazilian growers to market their remaining 2023/24 coffee supplies.

COCOA

July cocoa bounced off its low yesterday and closed higher on the day, but it set back slightly overnight. Open interest was down to 153,000 contracts as of Monday from 334,000 in January and 403,000 a year ago. This is the lowest since 2010. Low OI reduces liquidity and makes the market susceptible to wild moves. Increased rainfall in West Africa in recent weeks has improved the outlook for the mid-crop, but it is too early to tell if it is making much difference. Global cocoa supply is still on track for a third straight global production deficit for 2023/24, and there are concerns that this could stretch into a fourth year if the weather does not cooperate. Too many old, diseased trees may make it difficult for production to recover quickly. Bloomberg is reporting that Ivory Coast has suspended their Fairtrade cocoa program due to indications that a large amount of beans in the program have not been certified.

COTTON

July cotton collapsed yesterday after it fell below the five-month low from earlier in the month. This took the market to its lowest level since last June, which it extended slightly overnight. US weather/soil conditions point to a strong start for the US crop, and the trade apparently sees little urgency to build a weather premium. Traders are also expecting the US to see heavy export competition from Brazil and Australia. The decline in the Brazilian real increases the incentive for Brazilian producers to sell for export. The stock market was lower yesterday ahead of the FOMC meeting results on Wednesday, where Fed Chair Powell is expected to reinforce recent messaging that the Fed will not cut rates until it is more confident that inflation is under control.

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