Equities Selloff Pressures Cotton

COTTON

Cotton is under pressure from the selloff in equities, which has come in the wake of the latest salvo of tariffs announced late yesterday, with December cotton falling to its lowest level since June 23 overnight. It does not help that the US dollar has risen to its highest level since May, as that make US cotton less competitive on the global market, not that US cotton exports benefited from the dollar falling to its lowest level in three years at the end of June. US cotton export sales reported yesterday were a little better than last week, but not very good.

World Weather Service says West Texas still needs greater rain and some additional warm weather to support “the best” dryland production. Other areas in Texas are seeing highly varying weather and soil conditions and Timely rain will become increasingly important in next two weeks. The weekly US Drought Monitor showed 5% of US cotton production was in an area experiencing drought as of July 29, up from 3% the previous week but still very low as conditions got drier in the Carolinas, Georgia, and Alabama.

SUGAR

October Sugar is drifting lower this morning, following a bearish UNICA report yesterday and economic anxiety fueled by a stock market selloff and a new round of tariffs announced by the Trump Administration. The US already heavily regulates sugar imports, so the tariffs should not have a direct effect on world sugar flows, but the economic concerns generate buy the tariffs could fuel consumption worries. The UNICA report showed Center South Brazil sugar production for the first half of July as up 15.1% from the same period a year ago versus an average trade expectation calling for a 12.1% increase. Cumulative production is now running about 9.2% behind last year after being 14% behind at the end of June. One notable point is that sugar’s share of the cane crush was 53.7% during the first half of July versus 49.9% for the same period last year and that the cumulative shar is 51.6% versus 48.9% last year.

COFFEE

September Coffee is lower this morning but inside the range of the past two weeks. Coffee has not been excluded from the 50% US tariff against Brazilian exports. The US gets roughly one-third of its coffee from Brazil, and the US is the world’s largest consumer. The near term effect would be higher US prices, but Brazilian producers would be (and probably already are) scrambling to find new buyers. US coffee consumption is considered to be relatively inelastic, but higher prices could still lower consumption to some degree. Trump’s executive order says that coffee loaded in Brazil before August 6 could be sold in the US without the tariff. This tariff on is particularly difficult to negotiate because it is predicated on the Brazilian government’s prosecution of its former President, and the current Brazilian president is not likely to call that off. The Brazilian Vice President said yesterday that the government will work to convince the US to lower the tariffs. He confirmed that 35.9% of Brazil’s total exports to the US will face the higher tariff. Indonesia’s Sumatra robusta coffee bean exports reached 53,870 metric tons in June, up from 10,988 for the same period last year. Brazil coffee weather continues to be mild. World Weather Service does not expect any rain or threatening cold for the next 7-10 days. Brazil is in the midst of its cool and dry season, and so far the crop has avoided damage. Coffee areas in southern India will benefit from an increase in rain this weekend into next week and enough rain should fall to reduce irrigation needs. Indonesia saw some beneficial rains this week, and an improving trend is expect through the next week.

COCOA

The cocoa market continues its sideways pattern as it digests the poor 2^nd quarter grinding data that was released in mid-July and has guarded expectations for a strong West African main crop this fall. World Weather Service expects minimal rain in Ivory Coast and Ghana through this weekend with a few light showers possible most days.  Showers and thunderstorms will increase next week, bringing light to moderate rain to much of the region at one time or another during the early to middle part of the week with some additional showers late in the week. Rain will fall more routinely in Nigeria and Cameroon. The recent dry conditions may have raised some concerns about the upcoming crop, but this is a normal pattern. Rain mixed with sunshine is ideal. The trade will also be on the lookout for Monday morning’s weekly Ivory Coast port arrivals, as cumulative arrivals have fallen behind year ago levels for the first time since early October, when the marketing year was just beginning. The market does not seem to be reacting to the latest tariff announcements. The main cocoa producers, Ivory Coast, Ghana, Ecuador, Cameroon, Nigeria, Colombia, and Venezuela, all carry the minimal 15% rate.

Interested in more futures markets?  Explore our Market Dashboards here.