Cotton Remains in Steady Uptrend

COTTON

March cotton remains in a steady uptrend and closed higher yesterday. A weaker US dollar and hopes that export news will improve helped to support. Ending stocks are already projected to increase to 4.2 million bales as compared with 3.75 million last year and 3.15 million the previous year. Chinese markets are closed for the Lunar New Year holiday, so traders do not expect much demand news this week. Exports are already projected to drop to 12 million bales from 14.6 million last year and even with the sharp drop, cumulative export sales (as of last week’s update) have reached 9.068 million bales, down from 11.267 million last year and the lowest for this point in the season since 2016/17. Sales have reached 75% of the USDA forecast for the entire year as compared with the five-year average for this time of the year at 80%.

COCOA

While the market continues to face near-term demand concerns, cocoa prices will continue to be underpinned by bullish West African production developments. Forecasts calling for weekend rainfall over West African growing areas weighed on cocoa prices early yesterday, as that should provide some relief to the region’s cocoa trees. Keep in mind that West Africa’s “dry” season will continue through March while daily high temperatures should stay above 90 degrees Fahrenheit through month-end. While soil moisture levels are still thought to be in good shape, these conditions should have a negative impact on this season’s West African cocoa production. In addition, moderate rallies in the Eurocurrency and British Pound provided carryover support to the cocoa market as that should help European grinders acquire near-term supplies. Europe has seen their grinding totals come in below last year for two quarters in a row, but the region has stronger currencies and lower inflation that should benefit demand early this year.

COFFEE

Coffee prices have rallied more than 20 cents above their January low and are less than 5 cents away from a positive monthly result. While demand concerns continue to be a source pressure, coffee may be able to maintain upside momentum. The Brazilian currency rose by more than 1.2% in value, which benefits the coffee market as it eases pressure on Brazilian farmers to market their remaining near-term supply. The build-up of ICE exchange coffee stocks since their 23 1/2 year low in late October has reflected lukewarm European out-of-home consumption as most of those stocks are stored in Euro zone warehouse. European and US inflation is in the early stages of an extended pullback, and that should help to shore up restaurant and retail shop coffee demand in both regions.

SUGAR

With 4 sessions left in January, the sugar market is back on-track for a positive monthly reversal. While it continues to receive carryover support from key outside markets, sugar also needs bullish supply developments to finish this month on an upbeat note. An extended recovery move in the Brazilian currency should ease pressure on Brazil’s Center-South mills to produce sugar for export, which in turn provided the market with underlying support. The Petrobras gasoline wholesale price hike has been a source of additional strength to the sugar market as that should give a boost to Brazilian ethanol demand. The Unica Center-South supply report for the first half of January will be released at midsession, which is expected to show relatively small totals for crushing and sugar production.

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