July Cocoa Higher This Morning

COCOA

July cocoa extended its losses overnight and fell to its lowest level since March 15, but it bounced off its lows and is higher on the day this morning. There is concern that today’s quarterly earnings report from Hershey will reflect softer demand due to higher retail prices. The managed money net long as of April 28 was 13,944 contracts, down from 70,661 in January. The net position could be close to flat after the selloff this week. The non-reportable position had reached 6,105 contracts as of April 16, the highest since May 2022, which suggests small trader forced liquidation may have also contributed to the recent selloff. They too could be close to neutral. A recent shift towards wetter weather over West African growing areas has improved the outlook for the mid-crop production and next season’s main crop. Citi Research analysts said they believe cocoa prices have peaked for this cycle.

COFFEE

Fund long liquidation has been the theme for the past week or so after the managed money net long reached record levels in mid-April. A shift from El Nino to La Nina weather could bring better rainfall amounts to Vietnam and Indonesia this summer, which could improve the outlook for robusta supplies after their poor crops last year. Up until last week, reports of record temperatures and low rainfall in Vietnam sent robusta prices to all-time highs and supported and arabica as well. ICE exchange arabica stocks rose another 14,660 bags yesterday to reach their highest level in a year. This suggests ample supply and/or lukewarm demand. Honduras exported 762,231 bags of coffee in April, up 2.3% from the same period last year, according to IHCAFE. Cumulative exports since the marketing year began in October have reached 2.7 million bags, down 1.7% from last year. Costa Rica exported 138,323 bags in April, up 18% from last year, according to ICAFE. Their cumulative exports have reached 452,328 bags, down 6.6% from a year ago.

COTTON

July cotton fell through Wednesday’s low and traded to its lowest level since November 2022 yesterday and it was slightly lower again overnight. Yesterday’s weekly export sales report was a disappointment after the relatively strong sales of the previous weeks. The report showed US cotton sales for the week ending April 25 at 97,408 bales for the 2023/24 (current) marketing year and 34,407 for 2024/25 for a total of 131,815. This was down from 242,812 the previous week and was the lowest since March 28. Sales have reached 99% of the USDA forecast for the marketing year versus a five-year average of 104% for this point in the season. Shipments totaled 179,980 bales for the week, the lowest since January 18. The weekly drought monitor showed approximately 8% of US cotton production was within an area experiencing drought as of April 30, down from 9% the previous week, 38% a year ago, and 56% two years ago. Soil conditions certainly suggest this year’s crop could get off to a strong start. Crop planting progress was near average levels as of Sunday, but rain expected across Texas, the Delta and the southeastern US over the next five days could slow plantings.

SUGAR

July sugar remains inside its April/May consolidation. The market has managed to hold support at the one year low from mid-April despite some bearish first-half April production numbers out of Brazil. At the April 25 low, prices were down 26% from their high last November, and traders viewed the market’s reluctance to push lower on bearish news as an indicator that prices had fallen too far, too fast. Unlike the coffee market, funds have been mostly flat since early this year, so there is little or no long liquidation pressure. However, if the production outlook improves for Brazil, Thailand, or India, it could encourage active selling. One caveat is the dry conditions in Brazil earlier this year, which could slow the cane harvest as the season progresses. India’s NFCSF trade organization said that their nation’s 2023/24 sugar production through the end of April was 31.59 million tonnes, well above their early season forecast of 29 million but still 1.8% below 2022/23, as increased output from the state of Maharashtra was offset by lower production in Uttar Pradesh and Karnataka. This suggests India will stay out of the global export market through the end of the season in September.

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