Brazil Crop Expectations Improve

COFFEE

Coffee prices have maintained a coiling pattern since reaching a 4-week low last Wednesday, and they have extended their “higher low” pattern to a fourth session in a row overnight. The market appears to be building towards an inflection point, and the recent rainfall in Brazil’s growing region lends a bearish fundamental tone to the market. Brazil’s largest co-op said that their 2024/25 yields may come in higher than they originally expected due to the increased rain of the past two weeks. StoneX is projecting Brazil’s 2024 crop at 67 million bags, up 4.2% from 2023 but down from previous forecasts due to the record heat and below-average rains in recent months. The Arabica harvest is forecast at 44.3 million bags, up 3.6% from 2023, and robusta at 22.7 million, up 5.5%. This is the on-year in Brazil’s biennial cycle for Arabica coffee. A sharply lower dollar overnight could lend support to the Brazilian real, which would ease pressure on Brazilian growers to market their coffee.

COCOA

May cocoa was higher overnight following yesterday’s breakout rally to another new contract high. Hot, dry conditions in West Africa point to lower mid-crop production and have analysts looking for an even supply/demand tighter setup for the 2023/24 marketing year. An official from Ghana’s Cocoa Board said he expects their 2023/24 production to come in at 650,000 to 700,000 tonnes, down from an earlier forecast of 850,000. This would be their lowest in 14 seasons. There appears to be a better chance of rain in some areas of Ivory Coast over the next two weeks, but the outlook is mixed, and any rains that do arrive may not be widespread. Soubre has a greater than 50% chance of rain in nine of the next 14 days. Other areas show only three days with a 50% chance or more, and some areas are less than that. Reports are that chocolate manufacturers not covered for their needs in upcoming quarters, which suggest that any setbacks in prices will attract commercial buyers.

COTTON

May cotton was higher overnight as it extended yesterday’s recovery from Monday’s selloff. Traders are awaiting the weekly export sales data on Friday. Tomorrow’s report could be a key inflection point if it shows a recovery from last week’s numbers. The sales in tomorrow’s report will reflect activity during the week-long Lunar New Year holiday, which could keep them on the low side. Traders have been encouraged by the pace of shipments, and another strong representation on that end would be appreciated. This week, the National Cotton Council’s annual early season plantings intentions survey put 2024 cotton planted area at 9.8 million acres, down 3.7% from 10.23 million in 2023. This contrasts with the 11.0 million acres from the USDA Outlook Forum numbers last week. The dollar sold off sharply overnight but bounced off key support at the 200-day moving average. If the dollar continues to work lower, it will improve the US export outlook.

SUGAR

May sugar has held above the 50-day average for the past three sessions, and it appears destined to test that level today. Conditions have improved in Brazil’s key Center-South growing region with the recent rainfall, and this lends a bearish fundamental tone. The two-week forecast has a better than 50% chance of rain in 12 out of the next 14 days. This helps ease concerns that the dry conditions earlier this year will adversely affect production. Rabobank said that even if the weather improves, they don’t expect the crop to be anywhere near the exceptional levels of last year.

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