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Pressure Despite Oversold Status


Global equity markets were under pressure overnight on more bad news from the Chinese property sector, and this could pressure commodity markets today, including coffee. December coffee fell to a new 7-month on Thursday and finished with a steep loss for an eight straight negative result. Brazil’s Arabica production this season is expected to come in above last year, and that continues to be a major source of pressure on prices. Sluggish global risk sentiment has also pressured the market on concerns that a slower economy would weaken out-of-home consumption. There is some rain in the forecast for Brazil’s major Arabica growing regions next week, but most days are expected to be dry, which should help growers avoid too many delays.


The cocoa market saw some pressure from weaker Asian equity markets overnight, and it could see more if the selloff in equities extends into the North American session. December cocoa has already staged an impressive recovery this week after the steep decline last week, and this could leave some longs anxious to take profits. Reports this week that Ghana’s production could come in significantly below previous estimates suggests that the global supply deficit could be even larger than currently forecast. That and the prospect that El Nino will lower production further in 2023/24 are key supportive factors. However, there are concerns that high prices are putting pressure on demand.


India has received 40% less rainfall than normal in the first 17 days of August according to a Reuters report, which quoting an official at the India Meteorological Department. The official cited significant rainfall deficits in the southern, western, and central parts of the nation, which would include several key cotton producing states. This news could support the market today against pressure from lower equity market action off concerns about the Chinese property sector. US cotton export sales for the week ending August 10 came in at 186,276 bales, down from 280,707 the previous week and just below the four-week average of 187,400. Sales have reached 43% of the USDA forecast versus a five-year average of 52%. China was the largest buyer this week at 138,375 bales (74% of the total), and they have the most commitments for 2023/24 at 1.535 million. The weekly US Drought Monitor showed 24% of US cotton production was within an area experiencing drought as of Tuesday, up from 21% the previous week and the highest since May 30. Drought worsened significantly in the Coastal Bend area of Texas, expanded somewhat in west Texas, and appeared in the northern part of Mississippi and across the river in Arkansas. The forecast calls for hotter than normal temperatures across the cotton growing region for the next two weeks, but the chances of rain in west Texas have increased in the 6-10- and 8-14-day outlooks.


Sharply lower equity markets in Asia overnight could pressure the sugar market today if the selling extends into the North American session. However, a report that India has received 40% less rainfall than normal in the first 17 days of August could provide support. According to Reuters, the news came from an official at the India Meteorological Department who wished to remain anonymous. The deficit was in the southern, western, and central parts of the nation, which would include several key sugar producing states. The Department had been expecting rain amounts to be around 8% lower. The sugar market has been drawing support from concerns about upcoming production in India and Thailand and a possible global supply deficit in 2023/24 due to El Nino. In contrast, the Brazilian government agency Conab has forecast Brazil’s 2023/24 sugar production at 40.9 million tonnes, up 11% from last season.


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