SUGAR
Despite the recent recovery in sugar prices, the global supply outlook remains bearish. A slow start to India’s monsoon kept their June rainfall 10% below the long-period average, which caused delays in cane planting in Maharashtra and Karnataka, two of India’s three top-producing states. The monsoon regained momentum and eventually covered the entire nation several days earlier than normal. This should benefit the 2023/24 cane crop and help growers get the 2024/25 crop planted. The recent Unica supply report put Brazil’s Center-South sugar production during the second half of June at 2.695 million tonnes. This was 7.6% above year-ago levels, but it was lower than what the trade was expecting, and this supported the sugar market last week. Unica blamed a 3% decline in sucrose yield for the shortfall, pointing out that dry conditions during the second half of June encouraged farmers to harvest aggressively, including cane that was less mature and had lower yields. Three months into the 2023/24 season, Center-South production is running 25.8% ahead of last season’s pace. If this continues, Brazilian exports could offset declines from India and Thailand. Rising crude oil and gasoline prices has lent supports to sugar on ideas that processors in Brazil and India will shift more of their crushing activity to ethanol. But with sugar prices having reached their highest levels in over a decade earlier this year and still hovering in the general vicinity, it may take further gains in energy prices to get processors to change their mix. Regardless, crude oil prices were down sharply overnight, which could undercut sugar today.
COCOA
The cocoa market appears to have discounted last week’s disappointing European second-quarter grind total, while the supply outlook is looking even more bullish. Late last week there were reports that Ivory Coast regulators had halted forward sales of their 2023/24 cocoa crop because they were concerned that they would not have enough supply to cover sales. Continued rainfall has promoted the spread of black pod disease across Ivory Coast’s cocoa region and into Ghana and Nigeria. Last week, the US National Weather Service gave El Nino a greater than 90% chance of lasting through the northern hemisphere winter. The pattern started out weak, but forecasters favor continued growth through the fall and peaking this winter with moderate to strong intensity. El Nino events tend to bring drier than normal conditions to cocoa growing areas in West Africa and southeast Asia, which could adversely affect upcoming crops. A group of major Ivory Coast cocoa processors reported that their June grindings were 3.6% above last year, putting their total for 2022/23 so far to 11.1% ahead of last season’s pace. Ivory Coast has become is the world’s largest cocoa processor and may partially explain the lower-than-expected European grindings.
COFFEE
If global risk sentiment can regain a positive tone, coffee prices may be able to extend their recent recovery move. The outlook for out of home consumption has improved by the decline in consumer inflation, and that appears to have underpinned coffee prices within their recent consolidation zone. The nearby Brazilian currency (the real) is hovering near its highest level since May 2022, and this provides support to coffee on ideas that it eases pressure on Brazilian growers to sell market their product immediately. Last week the National Weather Service gave El Nino a greater than 90% chance of lasting through the northern hemisphere winter, with forecasters expecting it to peak this winter with moderate to strong intensity. Brazil’s coffee growing regions are not usually adversely affected by El Nino events, but Vietnam, Indonesia and India could experience see drier than normal conditions, which could reduce their upcoming robusta crops. This would still lend underlying support to Arabica prices.
COTTON
A stronger US cotton crop this year and a bearish supply/demand setup appear to have the capacity to limit upside potential for December cotton in the face of potentially threatening weather. Last week’s USDA supply/demand report put the US 2023/24 stocks/use ratio at 23.8%, up from 21.6% in the June report, 21.7% last year and the highest since 2019/20. Last week’s Crop Conditions report showed the US crop was much improved crop over last year and was close to the 10-year average. Even Texas was nearing its 10-year average, as drought conditions have improved significantly. However, the region has endured some hot weather over the past week, which could affect conditions in this afternoon’s conditions report. Demand has been disappointing, with cumulative old and new crop export sales at their lowest levels in eight years. This month’s selloff in the dollar could help improve the export outlook for US cotton.
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