Global Coffee Supplies Tight

COFFEE

The drawdown in ICE exchange coffee stocks to their lowest levels since November indicates strong demand, and it could put the coffee market in position to continue its uptrend off last week’s lows. A large portion of those stocks are in the Euro zone, which sees a significant portion of consumption at restaurants and retail shops. With inflation in the Euro zone continuing to decline, consumer discretionary spending should rise, which could boost coffee consumption. The Coffee Trading Academy reported that green coffee stocks in Europe rose only slightly in April to 11.19 million bags, up from 11.07 in March. March 31 stocks were the lowest in five years. Japanese stocks fell to 2.33 million bags, their lowest since at least 2018. Much of the increase in European supply was in Robusta beans. Robusta prices have been on a steady uptrend since January, and at times they have led the Arabica market higher. The Brazilian currency reached a new three-week high on Monday. This is supportive to coffee prices, as it eases pressure on Brazilian growers to market their coffee to foreign customers.

COTTON

US cotton crop conditions improved last week, and this may push concerns about the dry conditions in Texas to the background for a week or so. The cotton market has been trading in a sideways pattern since November, and it has lacked a consistent reason to break out of it. Yesterday’s weekly Crop Progress report showed 51% of the US cotton crop was rated good/excellent for the week ending June 4, up from 48% the previous week, 48% a year ago, and a 10-year average of 47%. This news may be enough to send December cotton lower for the next few sessions. Last week’s drought monitor showed a modest improvement in soils in west Texas. The 1-5-day forecast has rain amounts less than a half inch, which does not look like enough to make a make a much of an improvement. The 6-10-day forecast has normal chances of rain and normal to slightly above normal temperatures, but the 8-14-day switches to below normal precipitation and increased chances for above normal temperatures. Crude oil is back on the defensive after a brief rally yesterday, the dollar is higher, and equities are lower, and this undercuts July cotton.

COCOA

Cocoa broke out above its recent consolidation overnight and took out its contract highs from April. The market is drawing support from the prospect of a second global production deficit in a row and renewed concerns about West African output. A Bloomberg News article suggested Ivory Coast’s 2023 mid-crop cocoa production would be down 10% from last season, citing swollen shoot disease, the likely return of El Nino in the third quarter of this year, and reduced fertilizer and pesticide usage. Cocoa arrivals at Ivory Coast are running behind a year ago, with reaching just 2.104 million tonnes as of June 4 (for the marketing year beginning October 1), down 4.5% from the same period last year. Ghana is expected to see an increase in production this season, but their full-season output is still expected to be far below the 1.05 million tonnes from the 2020/21 season. This could keep West African near tight over next two months, into the midcrop harvest.

SUGAR

The sugar market has had only had one positive day out of the past nine, as a bearish supply outlook has more than offset carryover support from key outside markets, and unless the market receives some bullish supply news, it is likely to remain on the defensive until the Unica Center-South supply is released. Brazil’s Center-South sugar production remains well ahead of last year’s pace. The region has no rain in the forecast until the middle of next week, which should help cane harvesting and crushing operations continue at a full speed. India’s monsoon continues to be delayed, with the India Meteorological Department now projecting an arrival over their mainland on June 6 or 7, one week later than normal.

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