Rainfall & ICE Stocks Pressure Coffee

COFFEE

Rainfall in the forecast for Brazil and a higher ICE exchange stocks have pressured the coffee market this week. May coffee is approaching key support at the 0.618 retracement of the bounce off the January lows, and a failure to hold that level could set the market up for a resumption of the downtrend off the December highs. ICE exchange coffee stocks increased 5,017 bags yesterday. They climbed above the 300,000-bag level for the first time since November and were more than 53,000 above where they were at the end of January. There is daily rainfall in the forecast for Brazil’s major Arabica growing regions through the end of next week. There are several more months before harvest begins, but this marks an improvement over the consistently dry conditions that have persisted up until this week.

COCOA

Demand concerns are creeping into the cocoa market after its 17-month rally to all-time highs. A Reuters story said that Hershey and Cadbury were planning additional price hikes, and this follows Hershey’s latest quarterly sales volume falling 6.6% below the previous year’s total. Demand has been resilient to this point, with much of the price gain yet to reach the consumer. The sweeping price action in May cocoa as it reached another new all-time high has made the bulls tentative. And a steady decline in open interest since mid-January is negative technical action that could signal a top. Global supplies are tight, recent dry weather in West Africa has lowered expectations for the mid-crop, and it takes several years to bring newly planted trees into production. High prices may be the new normal, but demand may start to limit gains.

COTTON

Early USDA projections for 2024/25 US cotton planted area came in at the upper end of trade expectations, and this has put some pressure on the market this morning. Prior to the report’s release, May cotton had approached the contract high from May 2022. The nearby contract has traded to its highest level since October 2022, breaking out of a long consolidation pattern that stretches back more than a year, which is a technically bullish development. The Outlook numbers showed US cotton planted area at 11.0 million acres, up from 10.2 million last year but still the second lowest since 2016. Nearby US cotton supply is tight after the US’ poor crop last year, and the pace of exports has surpassed expectations in recent weeks. Last week’s export sales report showed net sales of 318,668 bales for the week ending February 1, down from 374,533 the previous week. The four-week total had reached 1.338 million bales, which was the highest since November. Traders will be watching today’s report to see if sales follow the same general pattern. The EPA said yesterday that farmers can use some of their existing supplies of weedkillers containing the chemical dicamba, despite a federal court ruling last week that halted sprayings. These pesticides are used on GMO soybeans and cotton.

SUGAR

May sugar’s failure to take out the January highs has been a disappointment to the bulls. Rainfall in the forecast for Brazil has improved the outlook for the 2024/25 crop, but traders are wary of it being enough. A Reuters poll of 12 analysts called for raw sugar prices to increase 19% in 2024 as the global market shifts into deficit in the coming season. Center South Brazil production is expected to remain strong, even with a drop in cane output, because mills are expected to favor sugar production over ethanol, but that is not expected to be enough to offset declines in Asia.

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