COFFEE
Recent heavy rains in Brazil’s key growing areas that have slowed the harvest pace mark a change for the region after the generally dry conditions over the past couple of months that have been ideal for harvest. Minas Gerais received 0.9” of rain in the past week, or 308% of the historic average. The action in December coffee was impressive yesterday, as it rejected a test of the August lows and reversed to close higher on the day, and it continued with small gains overnight. If the rains continue, it could ease harvest pressure on the market and support a more substantial recovery in prices. On the other hand, the recent rainfall should benefit flowering for the upcoming (2024/25) crop.
COCOA
December cocoa reached another contract high yesterday, as bullish supply factors continued to lend support. The market is well into overbought territory, but two years of global production deficits and the threat of a third one in 2023/24 have kept the market well supported. A strong El Nino can bring drier than normal conditions to west Africa, which could hurt the upcoming main crop, but so far, the region has seen plenty of rain. Above-average rainfall in most of Ivory Coast’s growing regions last week is believed to have helped the crop, but there are also concerns that this will delay the main crop harvest. The heavy rainfall could further also spread diseases like black pod and swollen shoot given the reduced pesticide and fertilizer usage during the past few years. El Nino is expected to last through the first quarter of next year, so perhaps it will have a greater influence on the mid-crop.
COTTON
The weekly Crop Progress report showed the US cotton crop experienced further deterioration last week, but this did not come as a surprise to the market, which sold off slightly overnight. December cotton had already anticipated the news with its rally to its highest level in over a year on Friday. Uncertain demand prospects have been a major limiting factor for the market in a year in which the US crop is close to its poorest condition on record. US export sales for 2023/24 are having their slowest start 2016, and concerns about the health of the Chinese economy adds to the disappointment. The dollar reached its highest level since March on Tuesday, which hurts US export prospects. The Crop Progress report showed 31% of the US cotton crop was rated good/excellent as of September 3, down from 33% the previous week, 35% a year ago, and below the 10-year average of 49%. The report also showed 94% of the crop was setting bolls, and 33% had bolls open. Increased chances of rain for west Texas in the next week could improve crop conditions, but it is getting a bit late in the game.
SUGAR
On top of lower production expected out of India and Thailand in 2023/24, Brazilian production may see a short-term decline with the heavy rains that have hit their major producing areas. So far this season, Brazilian output has been strong, as dry conditions have been conducive to cane harvest and crushing, but we are hearing reports that rains have stopped crushing activity in some regions. The forecast has turned dry through late next week, which should allow crushing to resume. October sugar rallied to a new contract high yesterday and finished with a massive gain. The major global trade house Alvean is projecting a global production deficit of 5.4 million tonnes for the 2023/24 marketing year, which would be the sixth deficit in a row. They do not expect India to allow sugar exports at all for 2023/24. This has been on the minds of traders recently with India’s monsoon rainfall below average and El Nino threatening dry conditions.
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