Support for Cotton Demand

COTTON

Crop conditions improved last week, and even Texas improved on the poor/very poor front despite the hot a dry pattern. This news did not pressure the market overnight as a lack of rain for the Lubbock area could still be on traders’ minds. However, increased chances of rainfall beyond this week could start to eat away at the 8.99-cent rally off the June lows. Yesterday’s USDA Crop Progress report showed 46% of the US cotton crop was rated good/excellent as of July 23, up from 45% the previous week and 34% a year ago but down from the 10-year average of 50%. Texas will have to endure very hot and dry conditions this week, but while the 6-10 and 8-14-day forecasts still call for above normal temperatures for Texas and the southeast, Texas is expected to see normal to above normal rainfall. Georgia, Mississippi, and the southern half of Arkansas show below normal chances of rain in the 6-10-day, but those states currently have good/excellent ratings of 71%-77%, which should give them room to withstand a period of dry weather. In general, the weather and crop conditions look better than they did a week ago. An improved economic outlook and strong crude oil prices provide support to cotton on the demand front.

COCOA

September cocoa broke out to another new contract high overnight as excessive rainfall and flooding continue to be a concern for west African growing regions. Moderate to high precipitation has been reported in western Ghana, western Nigeria, and eastern Ivory Coast during the past week. This helps crop development, but flood risks have continued in Ghana and Ivory Coast. The forecast calls for slightly warmer than normal temperatures with moderate to high rainfall, which means flood risks will continue. This disrupts harvest and drying of beans, prevents farmers from tending to their trees, and could lead to delayed application of pesticides and fertilizers. The damp weather has also contributed to disease.

COFFEE

Another breakout in the Brazilian currency (the Real) to new contract highs will reduce pressure on Brazilian growers to market their coffee for export. The rally yesterday took the real to its highest level since May 2022. There were reports that Brazilian farmers were holding off on selling newly harvested beans in anticipation of higher prices. Last week it was reported that Brazil’s harvest was 66% completed as of July 18 versus a five-year average of 71%. The market has also seen a boost in demand expectations recently with the string of lower-than-expected CPI results in the US and Europe and a general sense that inflation has been tamed without forcing a recession. Yesterday, September coffee broke out above its late June/July consolidation zone and finished with a strong gain. If global risk sentiment continues to improve, the market could continue its rally off the July lows.

SUGAR

The trade is expecting strong report out of Unica this week, with average expectations for Brazilian sugar production for the first half of July to come in at 3.3 million tonnes, 10% above year-ago levels. Dry weather has been good for harvest. Anticipation of the report may have contributed to October sugar’s turn lower yesterday after it traded to its highest level in more than a month. We could see some more choppy action until the report is released. A rally in gasoline to its highest level since October 2022 lent support yesterday. Prices are a bit lower this morning, and if they continue to weaken, this could put additional pressure on the sugar market. However, the Brazilian currency reaching its highest level in over a year lends support as it reduces pressure on Brazilian producers to sell their product. Traders will be watching weather developments in Brazil to see if El Nino starts to bring a pattern of heavier rainfall that would disrupt cane harvesting.

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