Favorable Ivory Coast Crop Conditions Discounted

COCOA

Expectations for favorable Ivory Coast crop conditions ahead have been discounted as cocoa has posted five straight “higher highs” since the quasi-failure at consolidation support in the first trading day of August. Certainly, the latest positioning report showed Cocoa with the smallest spec and fund long since the beginning of 2023 leaving the market with noted buying fuel in the event of a clear fundamental shift. While it might be premature, it is possible seeing Ivory Coast arrivals open the season last week with the reading 2% below year ago levels, prompted the recent low/reversal. Adding into the upward tilt are signs that the cocoa trade is heavily behind the rally with open interest and trading volume jumping sharply. However, it should be noted that a preponderance of fundamental news recently favored the bear camp with several key producers (Cameroon, Ivory Coast, and Ghana) anticipating increased production. Furthermore, the trade has recently talked up the prospect of growing West African production from improved seed technology, hope for good weather and expectations of “timely” inputs.

COFFEE

With the coffee market extending a significant August rally, one gets the sense “soft commodities” are back in speculative vogue. Obviously, the US 50% tariff on Brazilian imports has sparked the bullish reversal this month with the global supply chain forced to scramble to work around the US tariff and the rally could be a false flag. In fact, with US getting 1/3^rd of its cocoa from Brazil and ICE exchange stocks reaching 15 month lows last week, the coffee trade could initially exhibit a similar violent upside reaction as was seen in copper following a 50% US tariff. It should be noted that last week’s Brazilian loadings are the last beans exempted from the US tariff and that could provide an upside extension

COTTON

Unlike cocoa and coffee, the cotton market is (at best) catching modest technical short covering and potentially misguided fundamental buying. In fact, the cotton market is fortunate to have respected recent consolidation low support given favorable US growing weather and a pause in the slide of the dollar. While some analysts think the WADSE report could show lower US acreage, the trade at present also sees favorable yields. From a demand perspective, we see expectations of slowing global growth as a limiting force for cotton, especially with US export demand at 23% of the USDA forecast and exports last week 15% under five year average levels.

SUGAR

Even the sugar market seems to have caught a lift from the sharp gains in cocoa and coffee. Apparently, the mere presence of US tariffs on Brazilian products creates a bullish vibe in a bearish market. However, the market is facing a fresh minor bearish development from a favorable start to the Indian monsoon, bearish outside market vibes continue to flow from US grain markets, and therefore outside market support from tariffs should temper bullish speculative interest. However, the latest COT report positioning showed the noncommercial and nonreportable combined position with the largest net spec and fund short since late 2019 suggesting covering could surface if key resistance levels are reached on the upside from tariff speculation. While not a major bullish influence, Brazilian exports dipped last week by 5% with that development given added credence by the developing tariff storyline. However, Brazilian harvest is gathering momentum and should serve to dampen bullish sentiment.

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