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Brazil Production Offsets India Concern

SUGAR

The sugar market is getting conflicting supply news, with record production out of Brazil and concerns about cane crops in India and Thailand due to El Nino. A private consultancy is forecasting Brazilian 2023/24 sugar production at a record 42.7 million tonnes, up 2.3 million from their previous forecast and up from 37 million in 2022/23, citing nearly perfect weather for growth and processing. India’s August rainfall was 36% below their long-period average and was their lowest total for that month since at least 1901. The full-season monsoon rainfall is now 10% below the average. However, dry weather over Brazil’s Center-South cane growing regions should be help keep their harvest and crushing operations going at full speed, which could limit further upside.

COCOA

Cocoa saw a mild pullback overnight after the International Cocoa Organization (ICCO) quarterly supply/demand report put the 2022/23 global production deficit at 116,000 tonnes, down from 142,000 tonnes in their previous forecast. There had been some expectations for an increase in the deficit given the production problems out of Ghana that have recently come to light. World production was cut by 41,800 tonnes, but grindings were lowered by 67,000 tonnes. There were notable reductions for Germany (down 20,000 tonnes), Indonesia (down 15,000) Netherlands (down 10,000) and the US (down 10,000). Ghana’s output was lowered to 700,000 tonnes from 750,000 previously, but some had been looking for a bigger decline after Ghana’s Cocobod recently lowered their estimate to 650,000 tonnes. The trade may have been disappointed that the deficit got smaller, but this will still be the one in a row, and El Nino threatens a third one for 2023/24. There is a slight correlation between El Nino and dryness across west Africa, and the correlation seems to increase with stronger El Nino events. In 2015/16, a strong El Nino led to weaker cocoa production in West Africa.

COFFEE

Coffee finished August with its third monthly loss in the past four, but Thursday’s close was 7.30 cents above the 7 1/2 month low on August 18th (up 5%). If the market continues to see improving demand prospects, coffee could extend its recovery move. A setback in the Brazilian currency weighed on prices yesterday as it may encourage growers to aggressively market their crop to foreign customers. Brazil’s major Arabica growing region is expected to see only one day with rainfall through the end of next week, which should keep the harvest on track to finish by mid to late September. A rebound in global risk sentiment and a longer-term downtrend in inflation should provide a boost to restaurant and retail shop coffee consumption in developed economies.

COTTON

December cotton traded to its highest level in over a year overnight, as reports of lower production out of China, worsening drought conditions in the US, and concerns about damage to crops from the hurricane lent support. The USDA Attache lowered their estimate for China’s 2023/24 cotton production to 5.9 million tonnes from their previous forecast of 6.1 million. The weekly US Drought Monitor indicated that 37% of US cotton production is in an area experiencing drought, up from 32% last week and the most since May 16. Record-breaking temperatures were observed across the eastern half of Texas, Louisiana, and Mississippi. Areas of Extreme Drought (D3) and Exceptional Drought (D4) expanded along the northern Gulf Coast of Texas and Louisiana as well as areas of Severe Drought (D2) and Extreme Drought (D3) in southern Mississippi. The 6-10- and 8-14-day forecasts are calling for much above normal temperatures across the US cotton belt, which leave little chance for a recovery in the crop through the rest of the growing season. Sales have reached 44% of the USDA forecast for the marketing year versus a five-year average of 54% for this point in the season. This suggests that the USDA could lower its forecast for 2023/24 exports in upcoming supply/demand reports.

 

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