SUGAR
Sugar is seeing some mild pressure from weakness in the energy markets and concerns over Chinese demand after disappointing economic numbers this week provided further evidence that their economy remains sluggish. Brazil’s major oil company Petrobras announced that they would increase their wholesale gasoline prices by an average of 16.3% starting on Wednesday. The hike improves ethanol margins, but it is not expected to be big enough to encourage Brazil’s Center-South mills to divert crushing activity from sugar production to ethanol. Traders will be watching the weather in Brazil in case rainfall emerges and starts to delay harvest. Forecasts call for some rain next week, and the longer-term outlook has increased rainfall chances starting in September. The possibility the El Nino will reduce cane crops in India and southeast Asia provides underlying support.
COCOA
Cocoa’s tight supply situation and disappointing mid-crop could help the market maintain strength during periods of spec profit taking. December cocoa has stayed resilient in the face of sluggish global risk sentiment this week after its quick, steep selloff from contract highs last week. West African growing nations continue to have production issues with this season’s midcrop due to swollen shoot and black pod disease. The likelihood that El Nino will last through the first quarter of next year has also boosted prices on expectations that it will have a negative impact on 2023/24 production. July UK CPI came in at +6.8% on a year over year basis, down from 7.9% in June and mostly in line with expectations, which could improve risk attitudes today and help the demand outlook for cocoa.
COFFEE
Harvest selling pressure has increased with the weakness in the Brazilian real. There have been few weather delays over Brazil’s major Arabica growing regions in recent weeks, and this has kept their harvest running near full speed. Somar Meteorlogia reported Monday that Brazil’s Minas Gerais region received 1.8 mm of rain last week, 56% of the historical average. There have been reports that low prices are making Brazilian producers reluctant to sell, but the decline in the Brazilian real to its lowest level in 10 weeks offsets that tendency. December coffee closed lower for the sixth straight session on Tuesday, bringing it closer to its 2023 low from early January (144.85) than to its August high (167.50). Prices are well into bargain territory, but the risk-off attitude and a lack of bullish news may keep coffee on the defensive. ICE exchange coffee stocks fell another 565 bags on Tuesday to reach their lowest levels since November.
COTTON
A risk off mood pervades the cotton market on concerns over Chinese demand. The Peoples Bank of China cut rates for the second time in three months this week, which traders viewed as more evidence that their economy is underperforming. China has been the largest buyer of US cotton this year, and the market is sensitive to news that suggests that this could slow down. Cotton prices have declined this week despite sharp reductions in US crop conditions. The trade evidently feels this has already been priced into the market. Hot and dry conditions are expected across the cotton belt over the next seven days, and the 6-10- and 8-14-day forecasts call for above or much above normal temperatures. The forecasts for West Texas have been fluctuating between normal to below normal chances of rainfall. The pattern suggests the potential for more declines in crop conditions, but the market seems more concerned about threats to demand.
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