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Dec Coffee Extends Rally Overnight

COFFEE

December coffee extended its rally overnight with a move to its highest level since June 21. This comes despite evidence that Colombia’s production is bouncing back from low levels earlier this year and indications that Brazil’s output is strong. Report of port delays in Brazil and ever-tightening ICE exchange stocks continue to underpin the market. The Colombian Coffee Federation announced this week that their nation’s October coffee production came in at 1.157 million bags, up 30% from year ago levels, due in part to improved growing conditions since the La Nina ended earlier this year.

coffee spilling from cup

COTTON

December cotton finally found some support overnight as sellers took a pause ahead of today’s USDA report. Reports yesterday that Australia experienced its driest October in more than 20 years and the fifth driest on record going back to 1900 could raise concerns about their upcoming crop, which is currently being planted. El Nino typically brings drier than normal conditions to Australia’s major cotton growing areas during the southern hemisphere winter, and that seems to be what happened this year. There is not a strong correlation with El Nino and the weather during in the Australian summer, except for dryness in the extreme northern part of the country, which is not the main cotton producing area. A large percentage of Australia’s crop is irrigated, and reservoir levels were high at the end of the rainy season last March.

COCOA

December cocoa was higher overnight and was back in the vicinity of Tuesday’s contract high. The market has avoided significant follow-through selling after reversal action on Tuesday, as it continues to find support from the tight supply scenario. West African main crop production has fallen well behind last season’s pace in the first five weeks of the marketing year, and despite a mild increase in Ivory Coast cocoa arrivals last week, the market does not seem convinced that production will recover enough to avoid a supply deficit for 2023/24. The decline in inflation over the past year creates a more optimistic demand scenario for discretionary items such as chocolate. Cocoa demand has held up relatively well so far this year, but the market has reached its highest price level since the late 1970s, and there has been some pushback from multinational firms against on paying high prices on forward sales for the 2024/25 crop.

SUGAR

March sugar could be vulnerable to additional selling pressure if the bi-weekly Unica production report, which is due out this week, show Brazilian production continuing to run at a rapid pace, but it is hard to envision a game changer, as global supplies are tight and delays at Brazil’s port of Santos are preventing Brazilian sugar from reaching the market quickly enough. The previous Unica report showed 2023/24 Brazilian Center-South sugar production for the first half of October at 2.247 million tonnes, up 21.98% from the same period last year. The steep selloff in crude oil this week puts psychological pressure on the sugar market, as it could reduce ethanol demand and lowers the incentive on the part of mills to increase the ethanol mix in their cane crushing activity.

 

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