Cocoa May Continue to Climb

COCOA

The cocoa market’s main source of strength has been bullish supply developments in the face of disappointing grind data. But with fresh evidence of a positive demand outlook, the market may continue to climb. September cocoa reached a new 12-year high yesterday and finished with a strong gain. The major chocolate maker Lindt and Spruengli upgraded their full-year sales outlook after price increases led to organic growth above their target range. This improved the demand outlook for cocoa, as it showed chocolate consumption was resilient in the face of higher prices. The prospects for El Nino having a negative impact on upcoming production in West Africa and southeast Asia could lead to a third global production deficit in a row in 2023/24. Updated weather forecasts have moderate to high rainfall over areas of Ivory Coast, Ghana, Nigeria, and Cameroon over the next 10 days. This could lead to delays in the harvesting, drying, and transport of West Africa’s mid-crop cocoa beans, and it may spread disease among cocoa trees.

COFFEE

Coffee prices were unable to extend their upside breakout move to a fourth daily gain in a row yesterday, but they remain well clear of their mid-July lows. Although Brazil’s supply outlook will remain bearish for now, fresh supply/demand developments can underpin prices over the rest of the month. Brazilian farmers are reluctant to sell their near-term supply, but their harvest remains ahead of last year’s pace, and this has weighed on prices. Brazil’s major Arabica growing regions have mostly dry weather in the forecast through the end of next week, which should minimize delays to harvesting and the transporting of beans to port facilities. The Brazilian currency fell back from a new 1-year high into negative territory, which also pressured coffee prices, as that may encourage additional marketing of this season’s crop to foreign customers.

COTTON

Hot and dry weather in Texas and news that China is enacting new stimulus measures has cotton trading at its highest level so far for 2023. The market disregarded a modest improvement in US cotton conditions this week and focused on concerns about the possible effect the extreme heat is having on the crop in west Texas. The region has seen much above normal temperatures over the past few weeks, and that is expected to continue for another 14 days. The 6-10- and 8-14-day forecasts call for normal chances of precipitation, but the question is whether rain will arrive in time or at all. China’s leaders signaled this week that they would take steps to support the property sector, which should be bullish for their economy and for cotton consumption. China has been the US’ number one customer so far this marketing year.

SUGAR

To regain upside momentum and extend its recovery move, the sugar market needs fresh bullish supply/demand news. It has avoided severely negative news, but it did receive further evidence of a bearish supply outlook yesterday from the Brazilian trade group Unica’s supply report for the first half of July. The report showed Center-South sugar production at 3.241 million tonnes. Although this was slightly below average trade forecasts, it was 8.86% above year-ago levels. The cane crush was 4.21% larger than last year, and total ethanol production was 1.36% higher. Sugar’s share of crushing came in at 50.01% which was below average estimates, but it reached the 50% threshold that some analysts feel is a rough ceiling for crushing being devoted to sugar production. Sucrose yields for harvested cane were 1.69% below last year. This was the second bimonthly reading below 2022 levels. Center-South domestic ethanol sales during the first half of July were 12.77% below last year, which puts July on-track for the first year-over-year decline in monthly sales since April.

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