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Dryness in Brazil Sparks New Concerns

COFFEE

March NY (Arabica) coffee is close to testing its six-month high from December 1 after a surge in London (robusta) prices over the past couple of days. Recent hot dry weather has raised concerns about crops in Brazil’s robusta-growing regions. There are concerns that the dry conditions may force municipalities to impose limits on water used for irrigation. This comes on top of a report the Vietnam saw a 7.4% decline in robusta exports from a year ago in November. Vietnam is the world’s largest robusta producer, and a decline in production this past year is what led the move to record highs for robusta prices in June. The rally in robusta coffee is lending support to Arabica, despite improvements in Colombia’s output that has taken their 12-month total back above 11 million bags for the first time since March.

COCOA

March cocoa continues to hold its ground near 46-year high despite the reversal on Monday. The main crop harvest in west Africa is falling further behind, and as the season progresses, it looks more and more like the global production deficit will extend for a third consecutive year in 2023/24. The start of the dry season in West Africa could support harvest and drying activity in the near term, but ultimately it will slow production even further, and the possibility that El Nino could bring drier than normal conditions in the coming months is in the back of traders’ minds. November US CPI was almost 4% below a year ago levels, and the drop in inflation does offer some defense for chocolate demand against the inevitable increase in prices that will come with cocoa at 46-year highs.

COTTON

March cotton bounced off its lows yesterday and was mildly higher overnight, but there is little for the bulls to get excited about. Last week’s USDA report put the global stocks/use ratio at 72.5%, which is down from 74.3% last year but the second highest since 2019/20 (93%) and the third highest since 2017/18 (96.6%). Supplies are ample, but not extremely ample. Brazil is expected to export 11.5 million bales in 2023/24 versus 6.66 million last year. US exports are off to their slowest start since 2017, which is not surprising given the poor crop this year. Crude oil saw a steep selloff yesterday and extended those losses overnight, and that could pressure cotton as well because cheaper oil means lower costs for made-made fibers. However, equity market gains and lower inflation readings are supportive for demand.

SUGAR

March sugar put in a spike low yesterday after the Unica report showed Brazil’s sugar production continuing to run well ahead of last year, and the market added to its gains overnight. The report showed Brazilian Center-South sugar production at 1.399 million tonnes for the second half of November, up from 1.036 million for the same period last year, for a 35% increase. This was down from 2.190 million in the first half of November and was the smallest half-month total since May. Total production for the 2023/24 marketing year has reached 40.817 million tonne, up from 33.052 million a year ago for a 23.5% gain. Production is slowing down, but the increase from last year keeps getting wider. Syria has tendered to buy 25,000 tonnes of raw sugar. Crude oil saw a steep selloff yesterday and extended those losses overnight. If the selloff continues, it could put some pressure on sugar.

 

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