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West African Cocoa Supply Concerns

COCOA

West African growing areas are forecast to receive daily rainfall starting Wednesday and lasting through the middle of next week. Below average rainfall was seen in many areas last week, which may have provided underlying support to the market. Farmers in Ivory Coast said more rainfall was needed in June but that soil moisture content should help the mid-crop develop in coming weeks. Some described the level of rain as “acceptable.” West African supply remains tight, and there are long term concerns about tree health, adequate fertilizer and pesticide usage, and the efficiency of the national pricing structures in Ivory Coast and Ghana. At its low this month, July cocoa had given back about 50% of its rally, and we expect the market to trade in a range until the fate of the upcoming crop becomes clearer.

COTTON

July cotton saw positive action last week on fund short covering and active buying of US cotton by China. Friday’s Commitments of Traders report showed managed money traders were net sellers of 8,058 contracts of cotton for the week ending May 21, increasing their net short to 23,372, their largest since March 2023. The record net short was 47,428 from August 2019. The rally since the data was collected has likely reduced the oversold status. The 28% decline in prices off the February high attracted global buyers and left the market without much weather premium at the start of the growing season. Drying in parts of the Delta over the weekend was welcome, but growers say more is needed. India and Pakistan are being stressed by heat. India’s weather office said they expect La Nina conditions to develop during July-September, and they look for the monsoon rainfall to be 106% of the long-term average overage. For the month of June, they look for temperatures to stay above normal and for rainfall to be average.

SUGAR

July sugar gapped higher overnight and came close to taking out last week’s highs. The market has been in a sideways pattern since it put in a 14-mongh low on May 14, and there are some ideas that that could be a major low, as Brazilian production is expected to slow down as the season progresses. Brazil’s Center-South production has gotten off to a fast start, with March output running 34% above last year and April 66% higher. However, the drier than normal weather that helped the harvest start off strong may pull yields down as the season progresses.

COFFEE

July coffee pushed through last week’s high overnight and traded to its highest level since April 30. Drier than normal conditions in Brazil and Vietnam continue to provide support to the market. Somar Meteorologia reported Brazil’s Minas Gerais region saw 5.3 mm of rain last week, 69% of the historical average. There are reports that European firms have increased their coffee imports before the EU’s regulation on deforestation-free products comes into full effect at the end of the year.

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