Slight Improvement in Brazil Rain

COFFEE

Dry conditions in Brazil have supported May Coffee’s return to the vicinity of last month’s all time highs, but a chance of slowly increasing rain next week make limit further upside unless the forecast changes or the rains disappoint. World Weather Service reports coffee production areas have seen some periodic, light shower and thunderstorm activity in recent days, but most areas are experiencing net drying conditions. Temperatures have not been excessively hot, but the warmth is adding to the moisture stress already in place. Overnight maps showed the main coffee region of Minas Gerais received little or no rain over the past 18 hours. Reuters reported that soil moisture in South Minas Gerais has dropped to its lowest level in seven years. Vietnam exported 303,000 metric tons of coffee in the January-February period, down 23.5% from the same period last year, according to the General Statistics Office. The group revised down coffee exports in January to 134,000 tons from 140,000 tons previously. Export revenue rose by 37% to $1.7 billion. Indonesia exported some 18,449 tons of Sumatran robusta beans from the province of Lampung in January versus 3,315 tons for the same month last year. Brazilian coffee traders Atlantica and Cafebras, and its controlling holding company Montesanto Tavares Group, have filed for bankruptcy protection, citing failure by Brazilian coffee farmers to comply with contracts to deliver coffee, which  made their financial situation unsustainable. ICE certified arabica stocks decreased by 9,739 bags yesterday to 782,731. The amount pending review fell 6,135 bags to 51,314, the lowest since January 29. Traders reports that Brazil’s 2024 crop is basically sold out, and the  sharp rally in the Brazilian real yesterday reduces the urgency to sell coffee.

COCOA

May Cocoa prices have dropped 36% since their peak in December, culminating in a steep drop this week in the wake of a ICCO forecast calling for a global production surplus for 2024/25. While this was viewed as a surprise, a lot rides on West Africa seeing good growing weather. World Weather Service says moderate rains this week are typical for this time of year but not enough to counter evaporation brought on by hot temperatures. A similar pattern is expected over the next week. The region needs more rain and cooler temperatures for a strong mid-crop. Overnight maps showed parts of Ivory Coast receiving moderate to light rainfall (4-20 mm) over the past 24 hours. ICE certified stocks fell 10,544 bags yesterday to 1.434 million, which was the lowest since February 24.  Stocks are down almost 30,000 bags this week.

COTTON

May Cotton is higher for the second straight session after falling to new contract lows in the wake of the tariff announcements this week. Nearby prices fell to their lowest level since 2020, and the market became technically oversold. Managed money traders are holding a record net short position as well, which suggests they could be running out of selling capacity. The fact that China specifically mentioned cotton when it announced its retaliatory move this particularly unnerved the market, but China’s buying of US cotton has already slowed over the past couple of years. They are the fourth largest buyer of US cotton this year at 797,000 bales versus 2.059 million by Pakistan. Also pressuring cotton prices was a weaker stock market and general uncertainty over the global economic outlook, which affects demand, as well as lower crude oil prices, which makes man-made fibers cheaper to produce. With prices having fallen so much this week, a strong export sales report today could generate a positive reaction. Last week’s report showed net sales of 199,498 bales for the week ending February 20, which was down from 346,772 the previous week and the lowest since January 2. Cumulative sales for 2024/25 had reached 93% of the USDA forecast for the marketing year versus a five-year average of 94% for this point in the season.

SUGAR

May Sugar is slightly lower this morning but is holding its low from Wednesday. Short-covering appeared to emerge after the market sold off on heavy deliveries against the March contract, but those deliveries suggest supply is not as tight as feared. Brazil’s lack of rain is raising some concern, but the situation is not dire yet.  Recent concerns about lower Indian supply appear to have faded into the background, but for how long? Lower crude oil prices pull support from ethanol and therefore from sugar.

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