Soft CPI May Boost Coffee Demand
December coffee is attempting to put in a seasonal low. The Brazilian Arabica harvest is nearly complete, but we could see renewed pressure as the newly harvested beans are marketed. The Brazilian real was lower yesterday, and if it continues to lose ground, it could increase pressure on Brazilian growers to market their supply to foreign customers. The flowering period for the 2024/25 crop has begun in some Brazilian growing areas, and dealers report that the crop has started off in good shape, but rain is needed over the next two or three weeks to advance turn the flowers to berries. Cheaper fertilizer prices this year could encourage more widespread application on coffee trees, which would benefit 2024/25 output. ICE exchange coffee stocks fell 5 bags on Tuesday to reach a new low for the year. However, coffee waiting to be graded rose by 1,300 bags to 19,820 bags, which suggests stocks could start to climb soon. Demand expectations could receive a boost if today’s CPI number comes in soft.
Cocoa prices have been resilient in the face of negative global risk sentiment this week, as supply concerns out of west Africa have dominated the market. Today’s US CPI data could leave cocoa vulnerable to a pullback if it comes in hot, as that could renew concerns about demand. Forecasts calling for Ivory Coast’s 2023/24 production to be 20% lower than 2022/23 have supported the market this week. West African growing areas have rainfall in the forecast through late next week. This should benefit the main crop, but it could delay early harvest and drying, which is expected to begin soon. The monthly US CPI is expected to see a second year-over-year increase in a row after 12 months of steady declines.
The USDA supply demand report was generally positive, but cotton was lower overnight, as the market is in a consolidation mode after reaching its highest level in over a year on September 1. The USDA report showed US 2023/24 cotton production at 13.13 million bales versus an average expectation of 13.57 million and a range of expectations from 13.00 million to 14.20 million. Beginning stocks were revised higher due to balance sheet adjustments for the previous two years, and this resulted in a much smaller decline in ending stocks than the production number would indicate. Some traders were surprised at this given that the good/excellent ratings for Texas have been running at all-time lows. Last year, Texas saw an abandonment rate of 75%, and the current forecast has this year at 36%. Traders may be cautious ahead of today’s CPI release, as a “hot” number could raise concerns about demand. Also, indications that China will start accepting Australian cotton exports again could reduce buying by the US’s number customer for the past year.
After a move to a new contract high yesterday, the sugar market could see some consolidation ahead of tomorrow’s UNICA supply report out of Brazil, which will cover the second half of August. The trade is expecting a strong number, just below the record volume in the first half of the month, as weather has been favorable to harvest and processing. The USDA reduced their 2023/24 US sugar stocks/usage ratio to 13.5% from 15.2% in July, due to smaller imports from Mexico and an 18% reduction in Louisiana’s cane production. French 2023/24 sugar beet production is expected to decline 0.9% from 2022/23. This would be 8.2% below their 5-year average. Sugar output in Maharashtra, India’s top producing state, is likely to fall 14% in the 2023/24 crop year to its lowest in four years, due to low cane yields after they experienced their driest August in more than a century, according to a Reuters report quoting industry and government officials. Maharashtra typically accounts for more than a third of India’s sugar output. This would put their 2023/24 production at 9 million tonnes versus 10.5 million in 2022/23 and 13.7 million in 2021/22. India’s state-run weather department is expecting a normal amount of rainfall in September, which it badly needs to limit damage.
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