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July Cotton Drifts Lower


July cotton is drifting lower as cash traders report little business being done at current levels and ICE exchange stocks continue to build. If the CPI number this morning does not come in “hot,” it could improve prospects for a rate cut and boost demand expectations and lift the cotton market. ICE exchange stocks reached 125,722 bales on Monday, up 13,668 from Friday and the highest since July 2, 2021. The USDA export sales and the supply/demand reports on Thursday may create some excitement. Last week’s report showed net sales of 107,779 bales, which was the lowest since early February, during Lunar New Year. Cumulative sales had reached 94% of the USDA forecast for the marketing year versus a five-year average of 100% for this point in the season. Traders are expecting Brazil and Australia to cut into US business. For the supply/demand report, a Bloomberg survey shows an average trade expectation for US 2023/24 ending stocks of 2.56 million bales, which would be up from 2.50 million in the March update but down from 4.25 million in 2022/23.


Cocoa prices have put together a 3-session winning streak and are threatening to take out their April 1 highs. West African near-term supply remains very tight. The rainy season there has officially begun, and the ongoing hot and dry conditions have the trade very concerned about the mid-crop. Any improvement in rainfall now could boost output in late May or early June. Ivory Coast’s Coffee and Cocoa Board has rolled 130,000 tonnes from main crop delivery to mid-crop due to a lack of available supply. There has been some pushback from farmers in Ivory Coast and Ghana on concern that the recent increases in their minimum purchase prices were insufficient given the 170% increase in cocoa futures prices since the marketing year began on October 1. It had been hoped that the higher prices would draw more cocoa to market.


Cecafe said Brazil exported 429 million bags of coffee in March, up 38% from a year earlier and a new record for the month. Robusta exports totaled 846,700 bags, nearly eight times what they shipped in 2023. This helps fill gaps left by Vietnam and Indonesia. Arabica shipments rose 15.1% year on year to 3.1 million bags. The trade is anxious about the upcoming Brazilian crop due to the dry conditions the region experienced late last year and early this year. ICE exchange coffee stocks increased by 6,308 bags on Tuesday, while coffee waiting to be graded fell by 12,718 bags. The trade is also focusing on the idea that hedge funds which have moved on from the cocoa market and are buying coffee instead.


Reports that India’s government is considering a proposal to allow factories to use an additional 800,000 tonnes of sugar to produce ethanol may have provided support to the sugar market late yesterday and overnight, as this may lower the chances that India will allow exports this season. India and Thailand have both reported better than expected production during the latter part of the season. Trade may be choppy ahead of the Unica second-half March Brazil supply report, which is due to be released this week. This will be the final report for the 2023/24 season, as the new marketing year started April 1. Asian commodities trader Wilmar told Reuters that rains in late March and early April in Center-South Brazil will improve the prospects for the 2024/25 cane crop. They are projecting a cane crop of 620-630 million tonnes, with sugar production at 42.5-44.5 million. Sucden is forecasting a much smaller crop of 40 million. There is no rain in the forecast for Center-South cane-growing regions until this weekend, which should keep harvesting and crushing moving along.


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