Rally on Declining Crop Conditions
Cocoa prices continue to hold their ground and have now climbed back above the 50-day moving average for the third time since the start of August. If global risk sentiment shows some consistent improvement, cocoa can extend this recovery move. There are further indications that a shortage of fertilizers is going to negatively impact next season’s West African cocoa production. In addition, there are reports that heavy rainfall could delay the start of Nigeria’s 2022/23 main crop harvest, and could also lead to a spread of disease.
Coffee’s updraft this week has resulted in prices gaining more than 12% in value and on the verge of new 6-month highs. While there is no single factor that has fueled the rally, it is apparent that bullish supply factors have been able to overcome near-term demand concerns. The current La Nina weather event will negatively impact production from Brazil and Colombia through the end of this year, which has provided plenty of fuel for coffee’s rebound. Brazilian coffee trees have seen drier than normal conditions for over 2 years from back-to-back La Nina’s, so very dry conditions over Brazil’s Arabica growing regions through early September has provided significant support to the market.
December cotton closed higher yesterday, but inside the range of the past two weeks. After a sharp 37-cent rally off the July 15 lows (a 45% gain), traders are concerned that higher prices could limit demand. The rally was the result of declining crop conditions in the US due to drought in Texas. It is probably too late to save the crop, but recent rains and a forecast for above-normal rainfall over the next two weeks suggest the long-term drought may have been broken. The weekly crop progress report showed the Texas crop and the entire US crop have the lowest good/excellent readings on record.
After seeing coiling action over the past 2 days, sugar prices have benefited from bullish supply news from Brazil. If key outside markets can maintain their strength, sugar prices may be able to turn up. The Brazilian trade group Unica released their latest supply report, which showed Brazil’s Center-South sugar production during the first half of August came in at 2.635 million tonnes which was 12.1% below last year’s total and below trade forecasts.
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