COCOA
March cocoa was higher overnight, but the market is still under the influence of a key reversal top from Monday. West African production issues continue to provide support, but with prices at 45-year highs, traders wonder how much higher they can go. Ivory Coast port arrivals are lagging year ago levels, and this is keeping global supplies tight. West Africa is nearing the start of its dry season, which normally runs through March, and the window for the main crop to make up for the slow start this year is closing. El Nino tends to bring heavy rainfall to Ecuador, and this could cause problems for their crop this season. A second US inflation reading in as many days came in lower than trade forecasts which was viewed as supportive to cocoa, as it added further impetus to the idea that the interest rate hike cycle is coming to an end.
COFFEE
March coffee traded to 4 1/2-month high yesterday but set back slightly overnight. Congestion at the port of Santos has slowed the flow of Brazilian exports, and that has provided support to the market this month. A heatwave in Brazil has started to raise concerns about the upcoming crop, but soil moisture is reportedly decent, and there is rainfall in the forecast for this weekend that would last through the end of next week. Rabobank has projected a global production surplus of 6.8 million bags in 2024/24 based on expectations for increased production from Brazil and Colombia. ICE exchange coffee stocks were unchanged on Wednesday, but they remain at their lowest levels since 1999. Recent heavy rains have slowed the robusta harvest in Vietnam. Global supplies of robusta coffee remain very tight after Vietnam’s poor crop last year, and the market is anxiously awaiting the new crop harvest, which is just beginning. Robusta prices reached record highs earlier this year, and that lent support to Arabica.
COTTON
March cotton has benefited from an improved demand outlook, but the rally may be limited by the competition that US faces from Brazil and Australia for share of the global export market. Market action has been impressive since it put in a harvest low last week, drawing support from a weaker dollar and an improved economic outlook in the wake of low inflation data. After two strong weeks, traders will be anxious to see if today’s US export sales report makes it a third. China has been an active buyer of US cotton recently, which has eased concerns that the Brazil and Australia were stepping in to replace it. Some traders continue to express concerns that a global recession could hurt demand despite what appears to be a strong US economy. China’s economy will be a big driver for demand.
SUGAR
March sugar bounced off the 50-day moving average yesterday and overnight, as the market has continued to consolidate near the recent 12-year highs. Delays at Brazil’s port of Santos have slowed the ability for their record production to relieve tight global supplies, but the sugar should start to flow, eventually. This week, the International Sugar Organization lowered its forecast for a 2023/24 global supply deficit to 330,000 tonnes, down from 2.11 million in its previous forecast, citing the record production in Brazil. Traders will also be watching for the start of the rainy season in Brazil, as that will end the cane harvest for the season. The group said heavy rain and less sunshine during the later part of the season lowered the sugar content in the beet crop.
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