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Dec Coffee Gapped Higher Overnight


December coffee gapped higher overnight, pushed through last week’s highs, and traded to its highest level since June 22. Logistics problems in Brazil may have slowed shipments of their newly harvested crop, and Arabica roasters are reporting tight supplies. ICE exchange coffee stocks fell 11,933 bags on Thursday, and they are already down more than 21,000 bags since the start of the month and are at their lowest level in more than 24 years. The drawdown reflects the tight cash market, with growers having little incentive to deliver into the exchange. Ironically, Brazilian green coffee exports in October totaled 249,567 tonnes, up from 199,845 for the same period last year. The recovery in the stock market this week and the improving global risk sentiment is supporting commodity markets in general, and it also boosts expectations for out-of-home coffee consumption. Brazil’s strong Arabica production this season could eventually weigh on prices, but port delays are apparently keeping near term supplies tight. Costa Rican coffee exports last month came in 120% above last year’s levels, and that may be an indication that Central American production could come higher than early forecasts.


Cocoa prices have held within a relatively tight trading range this week, with the top being Monday’s 44-year high. The market has had a lukewarm reaction to a significant positive turnaround in global risk sentiment, which may indicate that near-term demand concerns have not been soothed. This rebound in risk appetites improves demand expectations, and a rally this week in the euro and British pound improves the buying power for European grinders. However, there has been some pushback on the part of commercial buyers against paying multi-decade high prices when making commitments for 2024/25 cocoa. El Nino is expected to end by mid-2024, and this may give cocoa trees in West Africa, Indonesia, and Ecuador enough time to recover from any negative impacts. While there has been some optimism recently regarding West Africa’s main crop production, a global production deficit is still expected for the 2023/24 marketing year. Ivory Coast arrivals for the 2023/24 marketing year, which began last month, are significantly lower than last year.


December cotton drew some mild support from a strong export sales report yesterday, but not enough to hold the market off its recent lows. Dry weather across the cotton belt is speeding harvest along, and growers are reportedly anxious to sell given the stiff competition they face from Brazil. Brazil is negotiating a tariff-free quota of 100,000 tonnes of cotton sales to India, according to the Brazilian Cotton Farmers Association. Currently, any cotton imports into India pay an 11% tax. Dollar weakness and stock market strength were not enough to keep December cotton from falling back to the week’s lows overnight.


The choppy, sideways action in sugar has moved into its third month, and with bullish supply developments from three of the world’s largest producing nations, the market could remain well supported. Rainfall over Brazil’s main cane-growing regions may slow harvest and crushing activity, but that rainfall will also benefit the part of the crop that would be harvested later this season. But once the rainy season sets in, of any the harvest of any remaining cane would be delayed until next spring. Brazil’s port of Paranagua says it expects to return to full speed on Saturday, and this should help relieve some of the nation’s congestion, but the port of Santos is so congested that there is talk that the delays will continue into 2024. Brazil’s export issues have been magnified by the situation in south Asia, with India unlikely to allow more sugar exports until well into next year and Thailand’s increased regulation threatening to diminish their export flows.


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