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Cocoa Recovers Overnight

COCOA

December cocoa recovered slightly overnight after its steep selloff to its lowest level in more than a month yesterday. Ongoing weakness in the euro and British pound weighed on prices, it makes cocoa more expensive for European grinders to buy. Better than expected weather in west Africa has also played a part in the two-week selloff from record highs. El Nino typically brings drier than normal weather to the region, and this has been one of the forces behind the rally, but growing areas have seen an increase in rainfall in recent weeks, which should benefit main crop production. It can also increase the chance for black pod and swollen shoot disease, but reports out of Ivory Coast have been stressing the good growing weather. Minimum purchase prices in Ivory Coast and Ghana are set to increase once the 2023/24 season starts next week, which could bring in more supply. Concerns about weakening demand has also contributed to the recent selloff. The world is on track for a third straight supply deficit, but much of that may depend on how El Nino affects west African production.

colorful cocoa pods

SUGAR

The sugar market has seen a mild selloff this past week on an improving monsoon outlook for India and strong production out of Brazil. This has allowed March sugar to correct its overbought condition after reaching 12-year highs earlier in the month. Energy prices had sharp rallies yesterday following the weekly EIA supply report, with crude oil reaching a new 2023 highs, and that provided some carryover support to sugar on ideas it would encourage more ethanol production in Brazil. The UNICA report showed Brazil’s Center-South mills were maximizing their sugar production in the first half of September. There are indications that Brazilian ethanol demand is on the rise, as domestic ethanol purchases last month were 11% above year ago levels. The Brazilian real’s steep decline is a negative for prices as it increases the incentive for mills to produce sugar for export. Egypt announced that it will import 200,000 tonnes of sugar to enhance their strategic reserves to six months of domestic consumption. Supply issues in India and Thailand should continue to provide support to sugar, but the monsoon’s late departure in India bears watching, as this has a potential to boost their production forecasts and counter the forecasts for lower production expected from El Nino. India is not expected to allow exports until 2024 at the earliest.

COTTON

Concerns about lower US production have sent December cotton back near the September 1 high, as the trade is anticipating further reductions in US production forecasts in upcoming supply/demand reports. A strong US export sales report today could assuage some concerns about demand. Last week’s report showed net sales of 110,871 bales for the week ending September 14, which was the first time they had been above 100,000 since August 4. However, cumulative sales for the 2023/24 marketing year were the lowest for this point in the season since 2016. The dollar has been on a tear, with the December Dollar Index trading to contract highs for five straight sessions and the nearby contract the highest since last November, and this makes US exports less competitive on the global market.

COFFEE

Coffee HAS been unable to sustain upside momentum and may be heading for a new 2023 low. Updated forecasts have additional rainfall falling over major Brazilian Arabica growing regions late next week, and this has pressured coffee prices because it improves prospects for flowering. Traders will keep an eye on Brazil where rains will be needed in coming weeks. However, October-November maps suggest dry conditions could return. The Brazilian real plunged yesterday to its lowest level since May, and this puts pressure on coffee because it encourages Brazilian growers to market their product more aggressively to foreign customers. ICE exchange coffee stocks were unchanged on Wednesday and remained just above their 2023 lows.

 

 

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