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West Africa Still Needs Rain


July cocoa drew mild support from bullish outside factors yesterday but not enough to spark a substantial move off this month’s lows. The lower-than-expected US CPI for April sparked a steep decline in the dollar and a rally to new all-time highs in US stock indices, which was a boost to risk appetites, but this did not seem to attract much speculator buying in cocoa. Specs have been backing off from this market since January. The Euro and British pound reached new five-week highs, which should put European grinders in a better position to buy cocoa. West African rainfall has shown some improvement in recent weeks, but Ivory Coast growers still complained that it came up short of what they need. The global cocoa production deficit is expected to continue into 2024/25, but it is also expected to be smaller than the current season. West Africa needs good rainfall to salvage the mid-crop. Last summer, they were plagued by too much rain, which hurt the main crop.

cocoa pods


Coffee prices have been able to lift clear of their May low, but they continue to have trouble sustaining a recovery move. A rally in US equity markets and a weaker dollar yesterday were not enough to offset bearish supply-side developments. Strong Brazilian exports in front of this year’s arabica harvest continue to weigh on prices. Colombia’s production pace has been steadily increasing from the 9 1/2-year low last August. Uganda’s April coffee exports were 5% above last year’s levels. ICE exchange arabica stocks increased by 4,755 bags yesterday. Halfway through the month they are on-track to have their second largest monthly increase since 2022. Vietnam coffee growers said they have seen a lot more rain in May than in previous months, but they are still guarded about their crops’ prospects. Recall that Vietnam’s coffee exports for January-April were up 2.8% from last year.


July cotton bounced off its lows yesterday and extended its gains overnight, perhaps because the current price level does not leave much cushion if there is a weather problem. The market has benefited from improved global risk sentiment after US CPI came in at +0.3% for the month of April, which was slightly lower than expected. Core CPI was +3.6% on an annual basis, which was the lowest since April 2021. This initiated a sharp selloff in the dollar. This makes US exports more competitive on the world market. The lower inflation readings and stock market rally were supportive to domestic demand as well. US export sales have picked up over the past few weeks, and traders may be anxious to see if the trend continues in today’s update. Traders have noted heavy fund selling in recent weeks, with the managed money position falling from a near-record net long of 96,361 contracts as of March 5 to a net short of 13,699 on May 7. The net short is not big enough to be considered “oversold,” and the selling trend is negative.


July sugar extended this week’s losses overnight and traded to their its level in over a year. The UNICA supply report yesterday showed Brazilian Center South sugar production for the second half of April at 1.843 million tonnes, 84% higher than the same period last year. Cumulative production since April 1 has reached 2.558 million tonnes, up 66% from last year. Sugar cane harvest for the second half of April was up 61% from a year ago, and the cumulative harvest is up 43%. The dry weather Brazil saw earlier this year could pull production down as the season progresses. The India Meteorological Department expects the monsoon to arrive on Karala around May 31, which would be considered “on time.” Australia’s largest sugar producer, Wilmar Sugar, said today that strikes by its employees would delay the start of cane processing at its factories by several days but that the action is not expected to affect overall output. They have had two 24-hour strikes this month, and two more stoppages are planned for next Tuesday and Thursday. Indonesia has set a target to increase 2024 sugar output to 2.59 million tonnes, driven by heavier planting area following last year’s weak cane harvest.


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