Sugar Market Support Undermined

SUGAR

May sugar sold off this morning after failing to follow through on its move above the 50-day moving average yesterday. The market had been drawing support from concerns that dry weather in Center-South Brazil would hurt the upcoming crop, but a strong Brazilian export pace this year and indications that India’s output may not be a bad as expected have undermined support. Brazil’s commodity export terminal CLI projected yesterday that 2024 sugar shipments would reach 9.5 million tonnes, up more than 1 million from 2023. Total commodity shipments reached 1.3 million tonnes in February, a monthly record. Of those, 900,000 were sugar. India’s sugar production from the time the marketing year began on October 1 through March 15 has reached 28.1 million tonnes, down only slightly from the 28.3 million for the same period last year, according to the Indian Sugar and Bio-Energy Manufacturers Association.

COCOA

May cocoa traded to another new all-time high yesterday and is holding its own this morning. The market is technically overbought, and conditions are volatile. The prolonged period of heat and a lack of rainfall continue to worry west African growers. Rain has intensified recently, but it is still early in the season and there is skepticism whether this will be enough to boost mid-crop output. The rainy season runs from April to mid-November. Ivory Coast cocoa farmers have called on the sector’s regulator to overhaul its pricing scale, warning that it is preventing them from benefiting from record high prices. The regulator, the Coffee and Cocoa Council has warned exporters against paying above the mandated price for beans delivered to port facilities.

COFFEE

An outside day lower close in May coffee yesterday set the market up for further weakness today. Dry conditions persist in Brazil’s key growing regions, but the market is being pressured by a weaker Brazilian real, steadily increasing ICE stocks, and expectations of a large global surplus next year. Rainfall in southern, southwest Minas Gerais state, Brazil’s biggest Arabica coffee growing region, totaled 6.6 millimeters last week, 16% of the historical average, according to Somar Meteorologia. The Brazilian real fell off sharply yesterday to its lowest level since February 13. The weaker currency encourages selling by Brazilian coffee producers. There are expectations that the Arabica harvest will generate a surplus for the 2024/25 marketing year but that robusta could see a fourth consecutive year with a deficit. Last week Rabobank forecast a global coffee surplus of 4.5 million bags for 2024/25, up from a surplus of 500,000 bags for 2023/24.

COTTON

May cotton’s lackluster recovery yesterday opened the door for a further correction of the November-February rally. We are skeptical that the market will push too much lower given the approach of the US growing season. However, export competition from the Southern Hemisphere could pick up as their harvest advances. The funds are loaded up on the long side, which leaves the market vulnerable to aggressive selling if support levels are taken out. Soil moisture conditions in the US are much better than they were a year ago, which could encourage increased planting this year and set the crops up for a good start. The March 28 USDA Prospective Plantings report will provide some direction, but that is still more than a week away. Better-than-expected readings for Chinese industrial production and retail sales for January-February supported the cotton market early yesterday, as this raised expectations for demand.

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