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Global Cocoa Production In Deficit


The cocoa market is looking at a possible third consecutive global production deficit in 2023/24, but prices have already reached their highest levels going back to at least 1980, so it is not surprising to see occasional setbacks. Friday’s Commitments of Traders report showed managed money traders were net buyers of 1,668 contracts of cocoa for the week ending September 12, increasing their net long to 78,982. As has been the case for several weeks, the net long is close to the record 84,000 from 2013, which leaves the market vulnerable to heavy long selling as support levels are taken out. Cocoa sold off overnight as equity markets in Europe fell under pressure in the wake of the ECB rate hike last week. News late last week that Ivory Coast was set to resume forward sales for 2023/24 was another negative factor. The International Cocoa Organization has forecast Indonesia’s 2022/23 production at a three-year high of 200,000 tonnes, but this is far below their record 550,000 tonnes from 2009/10. Late last week, an official from the ICCO said that pests and diseases were as large a problem for global cocoa production this year as the extreme weather. Many of West Africa’s major growers have been unable access enough pesticide and fertilizer over the past two years, and that and the heavy rainfall this past summer has helped spread diseases such as black pod and swollen shoot. In the past, strong El Nino events have been associated with dry conditions there, but the correlation is not as strong as it is for southeast Asia. Last week Brazil announced cases of mosaic virus had been found. This is a fast- spreading disease, and it could cause severe problems with their production.


December coffee finished last week with a gain, breaking a two-week losing streak and forming a positive weekly reversal from Monday’s 4-week low. As this year’s harvest winds down, focus will shift towards Brazil’s 2024/25 Arabica crop, and the dry forecast for Brazil over the next two weeks could raise concerns about flowering and berry production. The Brazilian real reaching its highest level in two weeks eases pressure on growers to market their remaining newly harvested coffee to foreign customers. ICE exchange coffee stocks increased by 3,365 bags on Friday, but they remain close to their 10-month lows. There are 17,755 bags waiting to be graded. One would expect supplies start to build with the Brazilian harvest wrapping up and the new crop reaching the market.


The cotton market is in a consolidation mode, caught between a poor US crop and uncertain demand. The USDA supply/demand report last week put US 2023/24 ending stocks at 3.00 million bales, down from 4.25 million last year and the lowest since 2016/17, when they fell to 2.75 million. The stock/usage ratio is forecast at 20.8%, down from 28.7% last year and the lowest since 2016/17 as well, when it fell to 15.1%. Both numbers are the second lowest since 2013/14. However, the world numbers were not nearly as tight, with ending stocks for 2023/24 forecast at 89.96 million bales, down from 93.18 in 2022/23 but above the 84.50 million from 2021/22. Export sales last week were disappointing at only 91,685 bales, which marked the fourth week in a row they were below 100,000. Cumulative sales have only reached 47% of the USDA forecast for the 2023/24 marketing year versus a five-year average of 57%. The 6-10- and 8-14 day forecasts call for above average temperatures and normal to above normal chances of rain in Texas and the delta. It may be too late to help the crop, and heavy rain could do some damage to the quality. However, today’s weekly crop progress report could show some improvement in Texas after the rains last week.


For the second Friday in a row, sugar prices saw a negative key reversal from a new 12 1/2 year high, and there was additional follow-through selling overnight. The market has been drawing support from expectations that El Nino would negatively impact cane production in India and Thailand, but India has seen an improvement in its rainfall amounts recently. As of Thursday, reservoirs in India’s major producing states of Uttar Pradesh and Karnataka were 38% and 22% below normal storage levels respective, but as of Sunday, India’s 2023 monsoon rainfall deficit had narrowed to 8% below the long-period average from double-digit readings at the end of August. The deficit is approaching the threshold that represents a “normal” monsoon at 6% below the long-period average. Interior Karnataka has daily rainfall in the forecast through early next week, and eastern Uttar Pradesh is expected to see daily rainfall starting on Wednesday. Last week El Nino was given a 95% change of lasting through the first quarter of 2024. Brazil’s major Center-South cane growing regions have dry and warm weather in the forecast through late next week, which should allow harvest and processing to continue uninterrupted. For the first five months of the 2023/24 season, the region’s sugar production was 4.36 million tonnes ahead of last season.


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