Mid-Crop Status in Question

COCOA

May cocoa his holding its gains from last week, but the steep decline in open interest on the recent rally is a concern to the bulls. Ivory Coast has scattered rainfall in the forecast over the next two weeks, but there are only two days in which there is greater than a 50% chance, which leaves the status of the mid-crop in question. The rains appear to be limited to the coastal regions, so only a portion of the crop would benefit. Even if conditions improve in the short term, upcoming crops could continue to be dragged down by the damage done to cocoa trees last summer. Disease brought on by overly wet conditions were made worse by the lack of fertilizer and pesticide usage due to high costs.

COTTON

The strong pace of US exports has supported the recent rally in May cotton to its highest level since August 2022. China has been the principal buyer this year. Tomorrow’s weekly export sales report could show another week of strong sales and exports, as the data will be as of last Thursday, just ahead of the week-long Lunar New Year holiday celebration. The sharp rally in the dollar in the wake of Tuesday’s hot CPI number hurts the competitiveness of US cotton on the world market, but the market has remained undaunted. The rally in crude oil this month is supportive, as it makes man-made fibers more expensive, but the steep selloff in the stock market hurts demand expectations. The USDA’s annual Outlook Forum starts tomorrow, and it will feature long-term outlooks on US crops, including early forecasts for 2024/25.

COFFEE

The mood in the coffee market has turned negative with the increased chances of rain for key growing regions in Brazil and from the weaker Brazilian real. Brazilian rains should improve the outlook for the 2024/25 crop after the unusually dry conditions in recent weeks. Mina Gerais has a greater than 83% probability of rain every day over the next five days and 60% chance or greater for the five days after that. The dollar rallied sharply yesterday in the wake of a surprisingly hot CPI report that put the long-anticipated Fed rate cut further out into the future. This put on the Brazilian real, which fell to its lowest level since October 31 yesterday. The weaker real encourage Brazilian farmers to sell their coffee for export. Farmer protests in Antwerp are delaying the offloading of Brazilian coffee.

SUGAR

Rains forecast for the key sugar cane growing region in Center-south Brazil have put the bulls on the defensive this week. Daily forecasts showing a 60% or greater chance of rain in nine out of the next 11 days eases concerns about the upcoming crop after an extended period of dry weather late last year that had extended into this month. The dry weather was good for harvest and crushing last fall, and it helped extend the production season into December and January, but it raised concerns about the upcoming crop. For the first two weeks of January, South Central sugar production was 149% ahead of the same period last year (according to Unica). Total sugar production since the marketing year began on October 1 was 25% higher than last year. The Brazilian real fell to its lowest level since October 31 yesterday, which could encourage producers to sell more sugar on the world market.

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