COCOA
Cocoa production estimates for 2023/24 are starting to come in, and they seem to suggest an even tighter supply than what has been hinted at for the past few months. The October-March maincrop is estimated at 1.3 to 1.4 million tonnes, down from 1.75 million in 2022/23. The sources attributed the drop to weather conditions, and they stated there is no stock “in the bush” at the present time. Some have described the situation as the “worst in 15 years.” In general, the news flow for the past few months has primarily featured complaints about there being too much rain. Despite the threat of El Nino, rainfall deficits have been confined to India and southeast Asia and not west Africa, where dry conditions have a looser correlation with El Nino events. The fact that Ghana has felt justified in raising its farmgate price to prevent smuggling to Ivory Coast reinforces ideas of tight supply for 2023/24. News that Ivory Coast has finished their 2023/24 forward sales at 1.4 million tonnes versus 1.7 million tonnes for the 2022/23 season also indicates tight supply. The latest weekly Ivory Coast port arrivals was roughly half the size of same period last year, keeping 2022/23 arrivals well behind last season’s pace.
COFFEE
December coffee’s reversal and sharply higher close yesterday after testing the August low gives the bulls some hope of upside follow-through today. A major Brazilian broker commented that farmer selling remains slow because prices are close to production costs. The Brazilian real gapped higher yesterday and managed a sharp rebound after being under pressure for several weeks, and this also supports coffee prices because it eases pressure on farmers to market their newly harvested supply. ICE exchange coffee stocks fell 7,600 bags on Monday, and they have fallen more than 418,000 since the end of January. The drawdown suggests improving demand, particularly in Europe where most of those stocks are located. There are 18,520 bags waiting to be graded, but there has been no grading activity since last week. Vietnam’s 2023 coffee exports through the end of August had reached at 1.2 million tonnes ,5.4% lower than the same period last year.
COTTON
US crop conditions deteriorated further last week, but the market’s focus has shifted to the USDA supply/demand report later today. World production is expected to come in around 113.5 million bales, down from 114.12 million in August, with ending stocks at 91.08 million, down from 91.60 million. The August report showed a big drop in production from 16.50 million in July, which would seem to lower the chances of another big decline today. Crops with open bolls are more susceptible to damage from rain. Australian cotton is being stockpiled in Chinese warehouses on the hopes that a three-year ban on imports will soon be lifted. Chinese buyers were ordered to stop buying Australian cotton and other commodities in October 2020 after Australia called for an international inquiry into the origins of COVID-19.
SUGAR
A report from Czarnikow overnight seemed to reinforce concerns about Asian sugar production for 2023/24. The report stated that insufficient rains in Thailand will pull their 2023/24 cane production down to around 66.5 million tonnes from 90 million in 2022/23. Cane needs around 1500 mm (59.06 inches) of rain each year to maximize its development, but as of August they had only received 810 mm. This comes on top of concerns about India’s crop after their disappointing monsoon rainfall, which is running 10% below the long-period average with only three weeks left in the season. On the other hand, Brazilian production is strong, and expectations ahead of the Unica Center-South supply report later this week could this week could make the bulls apprehensive. India announced the start of the Global Biofuel Alliance at the G20 summit meeting this past weekend, and they reaffirmed their 20% ethanol blending target by 2025. This would double their current blending rate and would result in a reduction in their sugar output, but it would also require a significant increase in ethanol production facilities. The 1% rally in the Brazilian real is supportive to the sugar market, as it eases pressure on Brazilian mills to produce sugar for export.
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