Cotton Sharply Higher This AM

COTTON

December cotton closed at limit-up for the third straight session yesterday and the market is sharply higher this morning. Some traders have commented that the rally has been driven by speculator short covering. The dollar was higher for the third straight session, but that has not discouraged buying in cotton. Traders were also encouraged by the weekly Export Sales report because it showed that China was still actively buying US cotton. Cumulative sales for 2022/23 have reached 8.630 million bales, up from 8.509 million in 2021/22. Sales have reached 71.5% of the USDA’s forecast for the marketing year versus a five-year average of 61.8%. The largest buyer this week was China at 121,972 bales, followed by Pakistan at 23,193 and Turkey at 15,778. US cotton exports for the month of September totaled 153,000 tonnes, down from 268,000 in August but up 22.9% from last year.

COCOA

Cocoa prices were unable to extend their recovery move yesterday, but they will start today on-track for a sizable weekly gain. With indications that fourth quarter demand prospects are improving, cocoa may be able to turn higher. Very large selloffs in the Eurocurrency and British Pound as well as sluggish equity markets in the Euro zone and the US put carryover pressure on cocoa prices, as that may weaken near-term chocolate demand. Earlier this week, Barry Callebaut said that they do not expect a dramatic reduction in the chocolate market while Mondelez said that they expect European demand to hold up during the holidays. The major US chocolate maker Hershey will report their quarter earnings results early in today’s action, and a positive set of results from them can help to further strengthen cocoa’s global demand outlook. Analysts are starting to dial back their forecasts for this season’s West African production, and that provided late support to the cocoa market. Inflation gauges remain high enough that the demand outlook for many discretionary items (such as chocolate) will remain uncertain through the end of the year.

COFFEE

Positive demand news after Thursday’s close may provide early support. While ICE exchange coffee stocks fell by 2,100 bags on Thursday to reach a new 23 1/2 year low, there has been a buildup of coffee at the port of Antwerp waiting to be graded which is now more than 160,000 bags. Although a large portion of that coffee will not pass grading, a large amount will be approved which can help to soothe near-term European demand concerns. Recent rainfall and flowering have resulted in increased optimism over Brazil’s upcoming 2023/24 crop, and that also pressured the coffee market. The Brazilian currency reached a new 7-week high on Thursday, and continued strength in that currency will help to ease pressure on Brazilian farmers to market their near-term coffee supplies. Starbucks reported US comparable sales increased 11% over the past quarter, global comparable sales increased by 7% while China’s comparable sales had a smaller than expected decline, which may be evidence that out-of-home coffee consumption may be on the mend.

SUGAR

Sugar’s daily closes so far this month have been within a 4 tick range. If key outside markets can regain their strength, sugar should be able to finish the week strong. The pullback in crude oil and RBOB gasoline prices put carryover pressure on the sugar market as that may weaken near-term ethanol demand in Brazil and India. While Brazil’s Center-South mills have increased sugar’s share of crushing in recent months, Center-South domestic ethanol sales are on course for a third month in a row coming in above their 2021 total. In addition, the Brazilian currency made a new 7-week high which helped sugar to regain strength as continued strength in their currency eases pressure on Center-South mills to produce sugar for export. There is mostly dry weather in the forecast for Center-South cane-growing regions through the weekend which will help out with harvesting and crushing this season’s crop. Following that, however, there is daily rainfall in the forecast with heavier totals late next week, and that could create fresh delays to harvesting and crushing.

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