West Africa Rains Too Light

COCOA

May Cocoa is higher this morning after bouncing off a 2 ½ month low yesterday. The market sold off hard in the wake of the ICCO report on Friday that predicted a global production surplus for 2024/24, the first on in four years. This caught the trade somewhat by surprise, as previous analyst surveys called for a “balanced’ market. This surplus depends as much on lower demand as higher production. A lot rides on viability of the upcoming mid-crop in West Africa, and there are concerns that the current dry conditions will hurt production. The rainy season seemed to get off to a normal start, but persistent heat is negating the benefits of any rainfall that occurs. World Weather Service expects an erratic rainfall pattern to continue through the next week that would bring light rain to much of the cocoa areas at one time or another, but it is not expected to be enough to counter evaporation. ICE certified stocks fell 18,958 bags yesterday to 1.4445 million after reaching their highest level since December 10 on Monday.

COTTON

May Cotton is slightly higher this morning after yesterday’s steep selloff. The fact that China mentioned cotton in its retaliatory response to the new US tariffs was particularly unnerving to the market. Keep in mind that China has decreased its reliance on imports of US cotton over the past few years, switching more of its buying to Brazil. Still, China is the fourth largest buyer of US cotton so far this year, with commitments of 797,000 bales versus 2.059 million by the biggest buyer, Pakistan, and the higher tariffs will only encourage China to buy more from Brazil.

The break yesterday pushed May Cotton to new contract lows and pushed the market even deeper into oversold territory. It is possible the market has overreacted to the tariffs given the already reduced buying by China of US cotton. Initial support comes in at 62.54. Nearby Cotton fell to its lowest level since August 2020 yesterday and into a modest area of consolidation that leaves support around 59.00. After that comes the March 2020 low at 48.35, which was the lowest it had been since 2008, in the depths of the financial crisis.

COFFEE

May Coffee gapped higher overnight and traded to its highest level since February 19. Dry conditions in Brazil’s coffee growing areas continue to raise concerns about the upcoming crop. World Weather Service says the dry areas are expending and that crop moisture stress is under way. However, they also said the situation does not appear to be as serious several years ago, when a similar bout of dry and hot weather occurred in January, February and early March. Not much change is expected through next Monday. Totally dry weather is unlikely, but most of the precipitation is unlikely to counter evaporation. Reports this week that the Brazilian 2024 crop was nearly “sold out” adds to the concern about tight supply.  ICE certified arabica stocks decreased by 355 bags yesterday to 791,471. The amount pending review has fallen by 46,897 bags in the past week. There are 47,799 bags pending review from Brazil, down from 139,330 on February 5.

SUGAR

May Sugar found support overnight after falling to its lowest level since February 11 yesterday. Yesterday’s low culminated a five-day selloff based on strong deliveries against the March contract as well as disappointment with the market’s failure to push through the 20-cent level after four days of trying. Dry weather in Brazil may provide some support to the market, but World Weather Service says the sugarcane crop may not be seriously hurt, despite shorter cane heights and reduced tonnage. Dry conditions do help with sucrose values. However, the situation bears watching.

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