More Pressure for Coffee Market?

COFFEE

Coffee prices are holding their ground above their late July lows, but they have had trouble sustaining upside momentum for more than a single session. With fresh concern over global demand prospects, the market could see more pressure this week. The Brazilian real’s decline to its lowest level since July 11 could encourage coffee growers to aggressively market their newly harvested supply. Dismal export/import data from China sparked a risk-off mood in several markets yesterday that raised concerns about global restaurant and retail coffee shop consumption. Brazil’s major Arabica growing regions are expected to see only one day of rain through late next week, which will minimize harvest delays.

COCOA

Cocoa’s volatile price action this week appears to be the result of back-to-back capitulation events, first by commercial shorts during Monday’s updraft, and then by spec longs Monday and Tuesday. A more upbeat outlook for the upcoming west African main crop seems like the first bearish news that has had any influence on the market in quite a while. Heavy rainfall this summer had lifted the market on concerns about mid-crop harvest delays and that disease would affect the main crop. There was also the threat El Nino would eventually bring dry weather, which would also lower main crop production. Reports that recent rainfall in Ivory Coast have helped the development of the main crop may have initially been met with skepticism, but they seem to have contributed to the selloff this week. Disappointing Chinese trade balance data yesterday cast a shadow over global markets and raised concerns about demand for chocolate.

COTTON

Hot weather is expected to continue across the southern US with only a mild chance of rain for west Texas, which does not present much opportunity for the cotton crop to improve. The 1-5-day forecast has 0-0.5″ inches of rain for West Texas, but the seven-day forecast has below normal precipitation and above normal temperatures. This week’s Crop Progress report showed poor/very poor readings as bad as last year for the US crop and worse than last year for Texas. This suggests production will be revised down in future USDA reports. For Friday’s USDA supply/demand report, the average trade expectation for US 2023/24 cotton production is 15.78 million bales with a range of expectations from 15.25 to 16.30 million. This would be down from 16.50 million in the July report. Ending stocks are expected to come in at 3.40 million bales (range 2.64-3.75 million) down from 3.80 million in July. If ending stocks come in at the average estimate, they would still be above last year. If they come in at the low estimate, they would be the lowest since 2016/17.

SUGAR

India’s monsoon rainfall is turning out better than expected in some key cane growing regions, and this on top of the strong sugar production from Brazil could keep pressure on the sugar market. Some analysts have maintained that the record Brazilian production this year would not make up for reduced output from Thailand, India, and other producers, yet India’s monsoon rainfall was 1% above the long-period average as of Tuesday. Amounts varied depending on the region. Sugar prices were pressured yesterday by weakness in key outside markets and sluggish global risk sentiment in the wake of disappointing Chinese trade data. However, crude oil and gasoline were sharply higher overnight, which provided some measure of support to sugar. The Brazilian currency has fallen to its lowest level in almost a month, and this weighs on sugar prices on ideas it will encourage mills to produce sugar for the export market.

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