Strong Export Sales in Cotton

COTTON

May cotton surged more than 3% on Friday and the market moved back into the recent consolidation. The market turned up from an extreme oversold technical condition and from low open interest. The strong US dollar and weakness in the stock market failed to pressure the market as traders see good short-term demand for cotton with strong export sales in recent weeks. Cumulative sales for 2022/23 have reached 10.358 million bales, down from 12.582 million a year ago and the lowest since 2015/16. Sales have reached 92% of the USDA forecast for the marketing year versus a five-year average of 89%. Traders are optimistic about short-term demand given the reopening of the China economy and the outlook for a sharp drop in planted area for the coming season. The initial estimate for US cotton plantings by the USDA showed acreage at just 10.9 million acres, down 20.8% from this past season.

COCOA

After reaching a 1-year high following the holiday weekend, cocoa prices finished last week with 3 straight negative daily results. Increasing near-term demand concerns may lead to additional long liquidation early this week, but cocoa is showing few signs that a near-term top has been put in. High inflation levels will weaken demand for discretionary items such as chocolate, so a higher than expected reading for US core PCE put early pressure on cocoa prices. There has been an easing of concern over tight near-term West African supply following the move by Ivory Coast’s Coffee and Cocoa Board to restrict purchases of additional cocoa beans by major exporters once they have reached their buying limit. The catalyst for that move has been tight near-term cocoa supplies, with recent Ivory Coast port arrivals totals coming in well below the previous year’s comparable total. Yields for this season’s main crop have below normal due in part to a lack of adequate fertilizer and pesticide use. While there is some optimism in the market over the region’s upcoming mid-crop cocoa production due to recent rainfall, the harvesting of those beans will not reach full speed until early April.

COFFEE

The coffee market remains on-course for a second positive monthly result in a row, but appears to have lost upside momentum late last week. In many areas of the world, a large portion of coffee consumption occurs at restaurants and retail sales, so persistently high inflation levels have eroded coffee’s global demand outlook. A more than 1% pullback in the Brazilian currency also put carryover pressure on the coffee market as extended weakness in their currency will encourage Brazilian producers to market their near-term supply to foreign customers. The prospects that ICE exchange coffee stocks may start to rise again also weighed on coffee prices.  After a sluggish start to the season, Central American producing nations are expected to have an increase in their coffee exports during the next few months with Honduran January exports coming in above last year’s total. As a result, this should help to partially offset this season’s decline in Brazilian and Colombian coffee exports due to the negative impact on their production from the La Nina weather event.

SUGAR

Sugar reached a six-year high at the start of February and spent the next 3 1/2 weeks in a wide-sweeping coiling pattern. Many analysts are still projecting sugar to show a global production surplus for 2022/23, and that leaves the sugar market vulnerable to sizable downside move. A pullback in the Brazilian currency weighed on sugar prices as it may encourage Brazilian mills to produce more sugar for the export market. Brazil’s Petrobras has increased its wholesale gasoline prices, but this likely came too late for Center-South mills to shift their crushing activity from sugar to ethanol, at least until their operations resume next month. The sugar market has drawn strength from India where a drop in harvested cane yields caused many analysts to cut their 2022/23 production forecasts. India’s government also said that they would not allow any additional sugar exports this season beyond an initial tranche of 6.1 million tonnes, which compares to 11.73 million last season. While India is one of the largest sugar producing nations, a limit of 6.1 million tonnes would mean that they will account for less than 10% of global exports. In contrast, Brazil could have a 42% share of exports this season, with Thailand a 16% share and Australia a 5% share. All three nations are expected to have production increases in 2022/23, and that could result in global exports posting a record high.

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