Coffee Needs Improved Demand

COFFEE

Coffee’s two-day recovery move has lifted the market away from a potential downside breakout and back towards the middle of the late January/February consolidation zone. But with bearish supply developments continuing to weigh on prices, the market needs to see an improving demand outlook to maintain upside momentum. May coffee finished last week with a negative weekly reversal from last Monday’s 7-week high. Brazil’s key growing region of Minas Gerais received 2.25 inches of rain last week, 101% of the historical average. Itau BBA has forecast Brazil’s 2024/25 combined Arabica and Robusta production at 69.4 million bags, up from 66.3 million in 2023/24. ICE exchange coffee stocks rose by 4,800 bags on Friday to reach their highest levels since November. There are 65,717 bags waiting to be graded.

COCOA

May cocoa bounced overnight after Friday’s selloff. Some traders viewed the break as merely profit taking ahead of the long weekend, leaving the market ready to resume its uptrend this week. There are increasing concerns that consumer demand will weaken as candy makers raise their prices and/or reduce the size of their chocolate bars in response to the record cocoa prices. Many chocolate manufacturers have chosen to work down a larger portion of their cocoa stocks than normal, and they may have yet to meet the full brunt of the cocoa rally. Ivory Coast growing areas have chance of rain next week, but in general the forecast remains hot and dry. Likewise with Ghana. Only Cameroon seems to be getting any rain at this point. The strength of the Harmattan this year has raised concerns about the upcoming mid-crop.

COTTON

May cotton sold off hard overnight following an outside reversal lower on Friday. This followed six consecutive weeks of gains off surprisingly strong export activity. 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. But the report also called for US ending stock to increase slightly to 2.9 million bales in 2024/25. Last week the US EPA said farmers could use existing supplies of dicamba weedkillers, despite a federal court ban the previous week that halted sprayings. Last week’s export sales report showed net sales of 168,208 bales for the week ending February 8, the lowest weekly total since December 28. This may have added to concerns that the key driver of the recent rally was running out of steam.

SUGAR

Sugar’s wide-sweeping price action over the last three sessions did not result in a retest of the 50-day moving average, which is technically supportive, but the market did finish with its first weekly decline in eight weeks. Daily rainfall is expected in Center-South Brazil over the next two weeks, with only one day having a probability below 60%. Late last week, analysts were saying they were concerned that the recent rain had not been enough to replenish moisture, but the forecast seems to offer a better chance for this to happen. The rain is needed, but it will slow down what little remains to be harvested from last season. The dry conditions to date have extended last season’s harvest, which means there will be less harvest-ready cane available once the rains end. This may prevent harvest and crushing activity from returning to full speed until mid-April, and it could keep near-term sugar supplies relatively tight. Early trades forecasts have next season’s Indian sugar production coming in at 29 million tonnes, well below the current season’s output. This would increase the chances for India to keep their sugar export ban in place through the rest of the season. Cyclone Lincoln did not appear to impact cane growing areas in northern Queensland, Australia.

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