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More Drought in Cotton Growing Areas

COTTON

The worsening drought situation in the US could send December cotton back to a test of its highs from earlier in the month. US crop conditions have declined sharply in recent weeks, but the market has also faced concerns about demand. There seems to be no improvement in sight for the US crop. The weekly US Drought Monitor showed an expansion of drought in US cotton growing areas last week and a worsening of conditions in areas already experiencing drought in Texas and Oklahoma. According to the report, approximately 32% of US cotton production was within an area experiencing drought, up from 24% last week and the highest since May 23. There is some rain expected in Texas and other areas of the south this week, with chances of improved soil moisture in some areas. However, the 6-10- and 8-14-day forecasts call for much above normal temperatures in Texas and below normal chances of rain.

COCOA

Cocoa prices have held their ground above the 50-day moving average this week, as they have continued to find support from a bullish supply outlook. The market saw some choppy action yesterday but managed to close higher despite sharply lower equity markets and weak action in the pound and the euro. December cocoa pushed slightly higher overnight as those outside markets stabilized. There is increasing concern that El Nino will hurt production in Ecuador as well as West Africa and Asia. Ecuador has become the world’s third largest cocoa growing nation with the International Cocoa Organization forecasting their 2022/23 output at 400,000 tonnes. Western areas of Ecuador normally receive heavier than normal rainfall during El Nino, which could damage trees and spread disease.

COFFEE

Coffee prices have overcome choppy action to lift further away from last week’s 7-month low. While out-of-home demand prospects remain in question, coffee is showing more signs that a major low could be in place. Indications that Brazil’s Arabica harvest is nearing completion have provided the market with underlying support, as that could slow down the flow of newly harvested beans to Brazilian port facilities by late next month. Brazil’s July Arabica exports were 6.5% above year-ago levels, and this season’s larger crop should lead to higher exports than last season. However, some Brazilian farmers have held back on selling as they are waiting for higher prices. Thursday’s pullback in the Brazilian real weighed on coffee late in the day on ideas it would encourage growers to market their coffee supplies to foreign customers, but the decline in the real yesterday barely made a dent in the rally from earlier in the week.

SUGAR

Sugar has followed-through on Wednesday’s daily reversal higher and starts today on-track for a weekly reversal. The market has benefited from bullish supply news from India this week, but the large Brazilian production could limit further upside. India has indicated they may ban sugar exports throughout the entire 2023/24 season, but they have also said they will wait to see how the cane crop performs. Their first-half August rainfall is running 40% below normal, which has fueled their concerns that El Nino will result in a lower cane crop this year. The Brazilian trade group Unica released their latest supply report yesterday, and it showed Center-South sugar production during the first half of August at 3.456 million tonnes, 31.2% above the same period last year.

 

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