COTTON
March cotton recovered modestly on Tuesday after being down for three straight sessions and it extended those gains overnight. The market has been in an uptrend since putting in a post-harvest low in November, but the fundamental picture points to low US supply and ample global supply. The Commitments of Traders reports show the fund, commercial, non-commercial, and non-reportable positions were close to neutral, which reduces the chances of any short-covering or long-liquidation trend going into the holidays. The recent US Fed pivot has been bullish for equity and bond markets, and this could encourage domestic cotton consumption, but the market likely needs a surge in global consumption (particularly China) to see much of a rally. Brazil’s exports are expected to double in 2023/24, which offers strong competition for the US.
COCOA
If consolidation means continuation, March cocoa may be setting up for another move higher. There has been no letup in the bullish supply news out of west Africa, with arrivals this season in top producers Ivory Coast and Ghana sharply lower than last year. West Africa is starting to see the Harmattan winds out of the Sahara that normally arrive during the dry season. Traders are concerned that this year’s winds could be strengthened by El Nino, which could damage trees which are already affected by swollen shoot disease and are suffering the effects of reduced of fertilizer and pesticide usage in recent years. Cocoa prices are at 46-year highs, but there does not appear to have been any significant pushback by commercial buyers.
COFFEE
March NY coffee traded to its highest level since September 2022 yesterday but gave back much of those gains overnight. The market has been led higher by a rally in the London (robusta) futures to new all-time highs for the contract. The top three robusta growing nations (Vietnam, Brazil, and Indonesia) all have supply issues that are expected to continue into the new year, the most recent concern being an extended hot and dry pattern in the state of Espirito Santo, Brazil’s primary robusta growing region. ICE exchange coffee stocks saw a modest increase of 600 bags yesterday to reach a new high for the month. However, 4,770 bags of the 5,370 that went through the grading process were not approved. The market may have to dial back expectations for a rebuild in stocks.
SUGAR
In three of the past five sessions, March sugar has traded to a new low for the move only to reverse and close higher on the day, and indication that the selling is starting to lose its steam. News that key cane growing areas in Queensland, Australia have been damaged by heavy rainfall, provided support yesterday. Thailand is expected to see a sharp decline in its 2023/24 sugar exports, and India has already embargoed its exports for this season, and Australia’s production issues could cut further into global supply. This might act as a counter to the sharp increase in Brazilian production this year. Based on a survey of Indian farmers, a Reuters study has predicted India’s 2023/24 production to come in around 29.05 million tonnes (down 12.2% from 2022/23) and 2024/25 production at 26.6 million.
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