Coffee’s October Rally Loses Stream

COFFEE

Coffee’s October rally appears to have run out of steam after finishing last week with three negative sessions in a row, and until the demand outlook is strengthened by an improvement in global risk sentiment, the market could stay on the defensive. December coffee finished last week with a loss of 4.30 cents, breaking a two-week winning streak and forming a negative weekly reversal from Wednesday’s four-month high. Recent rainfall over Brazil’s major Arabica growing areas is seen as beneficial for the 2024/25 crop. Bottlenecks at Brazil’s major port of Santos may slow exports over the next few weeks. The drawdown reflects an improvement in demand, particularly in Europe where most of those stocks are located. This is the first time they have been long since June. Vietnam’s January-October coffee exports are estimated at 22 million bags, which is down 9.5% from the same period last year.

SUGAR

March sugar has seen coiling action for most of this month, and it just barely made a new contract high last week at 28.00. Global supplies are tight, with key producers in Asia seeing lower production this year, but Brazil’s output has been very strong. The market has recently draw support from shipping bottlenecks in Brazil, where heavy rains have delayed loading and sugar has had to compete with coffee and soybeans for shipping space. A Reuters story over the weekend reported that Brazilian mills in the Center-South region intend to extend their sugarcane crushing operations beyond the traditional period to cope with the record crop and take advantage of high sugar prices. They usually finish by November 20, but this year they hope to keep going into the first 10 days of December. Center-South is expected to add as much as 4 million tonnes of sugar production capacity next season. The Brazilian real rallied to a 4-1/2 week high on Friday but closed lower on the day, and this could be setting the currency up for a pullback this week. A stronger real reduces pressure on Brazilian mills to produce sugar for export.

COTTON

December cotton is continuing its recovery off the mid-month lows, as it balances a poor US crop with mediocre demand expectations and what appears to be enough global supply, and it may not be ready to resume its downtrend until US harvest is further along. US crop conditions are close to record low levels, and ending stocks are expected to be the tightest since 2016/17. Wet weather in west Texas has delayed harvest and raised concerns about quality, but conditions look drier this week. The 6-10- and 8-14-day forecasts show below normal to normal chances of rain for most of Texas. Last week’s Crop Progress report showed 41% of the US crop was harvested, with Texas at 40% as of October 22. An update will be released this afternoon. US 2023/24 exports are off to a slow start and are well behind the average pace relative to the USDA’s expectations. Brazil may surpass the US in exports this year. There was in an improvement in US export sales last week, with China being the main buyer. China is expected to shift more of their buying to Brazil and Australia this year.

COCOA

The cocoa market may have gotten ahead of itself over the past few weeks and could be vulnerable to a pullback given the market’s overbought condition. Heavier normal rainfall over Ivory Coast and Ghana this season has resulted in delays in the harvest and drying of cocoa beans. Those conditions are ripe for spreading disease as well. The are reports that Ivory Coast forward sales for next season are slow, as companies are reluctant to pay the current high prices.

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