Sugar Prices Turn to Downside
The cocoa market has received positive demand news recently that has offset disappointing second quarter grindings. With a $172 monthly gain going into the final trading day of the month, the market is vulnerable to profit-taking today. There were upgrades last week to earnings guidance from major US chocolate makers Hershey and Mondelez, despite a 10-month uptrend in cocoa prices, further indicating the resilience of chocolate demand. The heavy rainfall over West African growing areas have raised concerns about the spread of black pod disease and swollen-shoot disease. Updated forecasts have El Nino lasting through the first quarter of 2024, which could bring drier than normal weather to West Africa that could negatively impact the upcoming main crop. El Nino is also expected to bring dry conditions to southeast Asia, which would hurt their crops as well.
ICE exchange coffee stocks continue to decline, which is an indicator of improving out-of-home demand. Stocks fell by 3,771 bags on Friday, and with one day left in the month, they were more than 16,000 bags below the June month-end total. This puts them on track for a sixth monthly decline in a row and the third lowest month-end total this century. The extended dry weather pattern in Brazil has allowed their Arabica harvest to make up for early delays, which could lead to more supply reaching the global export market soon. Safras and Mercado said last week that Brazil’s 2023/24 Arabica harvest was 65% complete as of last Tuesday, which was slightly behind last year’s pace and behind the 5-year average of 71% for that date. However, local dealers in Brazil commented that exports are not exceeding 3 million bags per month, which is what the world needs to build supply.
The cotton market clearly got overdone on the extreme heat theme last week and sold off sharply, but the Texas crop is not out of the woods yet. We expect a reduction in their crop conditions in this afternoon’s weekly USDA Crop Progress report. Last week’s report showed 46% of the US crop was rated good/excellent (G/E) versus 45% the previous week, 34% a year ago, and a 10-year average of 50%. In Texas, 24% was rated G/E versus 26% the previous week, 18% a year ago, and a 10-year average of 38%. West Texas is not expected to see any rain in the next 5 days, and the 1-7-day forecast has temperatures 4-8 degrees above normal and precipitation at 5% to 75% of normal. The 6-10 and 8-14-day forecasts have above or much above normal temperatures and normal to above normal chances of rain.
Sugar prices have turned back to the downside, as bearish supply news has offset support from key outside markets. October sugar broke a three-week winning streak last week and with a loss of 1.09 cents (down 4.4%). On Friday crude oil prices reached a 3 1/2-month high, RBOB gasoline a 10-month high, and the Brazilian currency a 13-month high, all of which provide support to sugar on ideas this could encourage Brazilian mills to shift more of their crushing activity from sugar production to ethanol. Through mid-July, Brazil’s cane crush was 10% ahead of the 2022/23 pace and sugar production 21% ahead, as sugar’s share of crushing was well ahead of last year. There is dry weather in the forecast for the cane-growing regions through early next week, which reduces the potential for harvest delays.
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