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Low to Spark Additional Selling?


July sugar is close to testing its 13 1/2 month low from earlier this month at 17.95, and a break below there could spark additional selling. Brazil’s 2024/25 harvest has gotten off to a fast start, but there is a possibility that the drier than normal conditions earlier this year will eventually lower cane yields. Traders will be looking to the next UNICA report, which will show sugar production for the first half of May, to see if there has been any slowdown in Center-South production. Second half of April production was 84% higher than last year, which exceed pre-report expectations of 50% higher. Thailand’s and India’s output are expected to recover this year due to the passing of El Nino. Weakness in crude oil and gasoline this week may have also pressured sugar prices, as this lessens the incentive to produce ethanol from cane.

sugar cubes on sugar background


The outside reversal yesterday in July NY coffee was bearish technical action that could lead to further selling today. The market was pressured by bearish supply news, with the Brazilian government agency Conab increasing its forecast for the nation’s 2024/25 Arabica production by 1.36 million bags to 42.11 million. There had been concerns that drier than normal conditions would limit production growth, so the revision higher was a bit of a bearish surprise. The Brazilian cooperative Cooxupe reported that the arabica harvest is progressing slowly, and some farmers are complaining about smaller beans, but others commented that beans can be smaller at the beginning of the season because of the hotter and drier weather. ICE exchange coffee stocks increased by 9,353 bags on Thursday to reach a new 14-month high.


July cocoa set back overnight after breaking out above a recent consolidation zone yesterday and trading to its highest level since May 13. The selloff from the April all-time high culminated at the 50% retracement of the entire rally, and the market is left to speculate how the west African midcrop will fare now that the region is seeing seasonal rainfall. Unusually hot and dry weather earlier this year sparked concerns that a mid-crop failure would follow the poor main crop last fall and lead to ever-tightening global supply. Ivory Coast’s Coffee and Cocoa Board are considering measures to combat fraud in certifying “fair trade” cocoa sales. There were reports that this season has seen 97% of Ivory Coast production certified as “fair trade” versus 50% in previous years.


July cotton held its own overnight following a sharp rally yesterday to its highest level since April 23. Recent rallies in the grains may have sparked a bid for acres in cotton after the 28% price decline this spring left the market with little or no weather premium. The selloff has also kept US cotton competitively priced, and a strong showing by China in the weekly export sales report supported the rally yesterday. Recent COT reports showed funds holding a modest net short position, which left the market vulnerable to short covering as well. The weekly export sales report showed US cotton sales for the week ending May 16 at 202,935 bales for the 2023/24 (current) marketing year and 47,870 for 2024/25 for a total of 250,805. This was down from 297,100 bales for the previous week, but it was the fifth week out of the past six that they were above 200,000. Current-crop sales were the highest for this week of the year since 2019/20.


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