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Idalia Brings Rain Where Not Needed

COTTON

The US cotton crop is in poor shape, and the weather forecasts do not indicate much chance for improvement, but the global supply setup does not look that tight. Even if US production falls an additional 20% from the current USDA estimate (which is already the lowest since 2015/16) the global stock/usage ratio would not be as tight as 2021/22. In other words, it will likely take problems with other nation’s crops to really tighten supply. That’s not to say prices could not continue to rally from current levels, especially if the market focuses on El Nino and possible damage to India’s crop or demand starts to look more robust. Monday’s crop conditions report showed the US crop with a slight improvement over the previous week but still near record lows. Hurricane Idalia is expected to hit landfall on Wednesday and proceed through southern Georgia and the Carolina coasts through Thursday and bring heavy rains in the process. This will not be helpful to the cotton crops as those areas have adequate moisture.

cotton w blue sky

COCOA

Cocoa’s four-session rally has been punctuated by a sharp updraft that has taken prices to within striking distance of making new 12 1/2-year highs. Bullish supply factors have been the main source of support, but a positive shift in demand prospects may be needed to lift the market to new highs. Yesterday’s “risk on” mood faded a bit overnight, which could put some pressure on the prices today. However, yesterday’s rebound in the Euro could put European grinders in a better position to buy cocoa.

COFFEE

Coffee has lost more than 20% in value from the April highs, as it has been pressured by a large Brazilian Arabica crop this season, but concern about next season’s output may support a recovery move. While Brazil’s coffee trees have benefited from the end of the La Nina weather event early this year, the rapid transition to an El Nino event this summer may negatively impact their upcoming crop. El Nino typically brings higher than normal temperatures and intermittent heavy rainfall to Brazil’s arabica growing regions, which could cause an uneven flowering cycle for the 2024/25 crop. Colombia tends to have drier than normal conditions with El Nino, which could make it difficult for their production to rebound from the 9 1/2-year low this year. The Brazilian harvest is winding down, which could reduce pressure on nearby coffee prices.

SUGAR

After a four-session rally of more than 2.20 cents, sugar could see some pressure from month-end profit taking. The market has seen a strong rally off concerns about next year’s crop due to El Nino, but current production out of Brazil remains strong. Traders are watching India and Thailand with El Nino threatening to lower rainfall totals that would hurt their upcoming crops. India’s August rainfall is at its slowest pace in over a century, and meteorologists are projecting this year’s monsoon totals to be the lowest in eight years. This affects cane production for 2023/24 and it can also inhibit planting for 2024/25. The Indian government is not expected to allow any sugar exports until at least the second quarter of 2024, and it may not allow any at all for the 2023/24 marketing year. Thailand has also experienced lower than normal rainfall. In contrast, Brazil’s Center-South production so far this season remains more than 21% ahead of last year’s pace.

 

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