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Cocoa Gains Overnight

COCOA

December cocoa closed higher yesterday and made further gains overnight after its quick selloff this week. The decline corrected an overbought condition and may have created an opportunity for bulls to enter the market. The fund net long is large, prices are hovering around 46-year highs, and the high prices threaten to eat into demand. However, El Nino threatens to bring poor growing conditions to much of the world’s major cocoa producing nations through the first quarter of 2024, and the market could see a third global production deficit in a row, something that has not occurred in 55 years. El Nino typically brings drier than normal conditions to southeast Asia, and a strong El Nino can bring dry conditions to west Africa as well. Ecuador could see heavier than normal rainfall that could spread disease and damage cocoa pods. The lack of adequate fertilizer and pesticide use in west Africa has resulted in lower output this season. Heavy rains this summer have brought reports of disease problems there as well.

cocoa pods opened

COTTON

December cotton fell to its lowest level since September 8 on Thursday but then recovered overnight, as the market continues in a choppy, range bound trade. The US crop is in poor shape, but export demand remains a concern. The market was weighed down yesterday by a steep selloff in equities, which did not bode well for cotton demand, and a stronger dollar, which makes US exports less competitive. The weekly US Drought Monitor showed 41% of cotton production is within an area experiencing drought, a slight improvement from 46% last week. A large part of Texas received over 2 inches of rain this week, and more than 5 inches were reported near Lubbock. The rain resulted in the reduction in drought conditions in western to central Texas and in the southeast and far south sections of the state. However, southern Mississippi saw an intensification of drought conditions. A better idea of how the crop is doing should emerge as the harvest proceeds. The trade will also start focusing on Australia as their plantings advance. China’s output is another question after a poor start earlier this year.

SUGAR

Sugar has remained resilient through pressure from outside markets and a negative turn in global risk sentiment. India and Thailand’s 2023/24 sugar production is expected come in well below 2022/23 due to El Nino, and this has helped lift prices to 12-year highs. India’s outlook has improved somewhat due to good rains in September, but there is still a good chance they will not export any during the 2023/24 marketing year. Datagro raised its forecast for Brazil’s 2023/24 Center-South sugar production to 40.3 million tonnes from a previous forecast of 39.45 million. The strong production out of Brazil acts as a counterpoint to the lower output expected from Asia. China will hold its first auction of state sugar reserves since 2016 amid tightening supply and soaring domestic prices.

COFFEE

December coffee has retraced more than half of its mid-September rally in less than three days to a key support level at 153.85, which could be a bull/bear line today. Brazil’s 2023/24 Arabica production will be 16% above last season, but with the harvest nearly over, it is possible the market has put in a low, as long as the double bottom from August and September holds. The market has been pressured this week from a risk off mood and a weaker Brazilian real. It also may have gotten ahead of itself after seeing a 20% rally in seven sessions. Brazil’s major growing regions have very warm and dry weather in the forecast through late next week, which could have a negative impact on the early stages of their flowering period.

 

 

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