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Sugar Prices Under Pressure

SUGAR

Nearby sugar prices are under pressure from strong production out of Brazil, but the market was up slightly overnight with a more positive mood in global equity markets. Last week, the Brazilian government agency Conab projected an 11% increase in Brazil’s sugar production over last year. Their Center-South mills devoted 50.6% of their crushing activity to sugar production during the second half of July, which was 3% above the same period last year and slightly above 50.1% from the first half of the month. Crude oil rose $6 a barrel and RBOB gasoline 27 cents a gallon during the second half of July, but that apparently had little impact on crushing percentages, as relatively high sugar prices kept mills incentivized to produce sugar. There were reports that India’s August rainfall through last Thursday was 40% below their long-period average and was on-track for the lowest August in more than a century. Traders have been concerned that Indian production would be affected by lower rainfall brought on by El Nino, and those concerns seem to be getting validated. China’s sugar imports in July totaled 110,000 tonnes, 60.5% below a year ago, and their total imports for 2023 are down 40.9% from last year. Sugar spreads have weakened as ample near-term supplies from Brazil but fears of lower output later this year have pressured nearby prices relative to the deferred contracts.

sugar cubes

COCOA

December cocoa saw mild pressure overnight despite a positive risk tone, as a burdensome net long position held by the funds has left the market vulnerable to more long liquidation. A major supportive factor for the market is the increasing likelihood that there will be a third global production deficit in a row in 2023/24 due to El Nino. Marex Spectron has forecast a deficit of 279,000 tonnes versus deficits of 77,000 in 2022/23 and 180,000 in 2021/22. They expect higher prices to reduce global grindings by 4%, but they also expect the global stocks/usage ratio to fall to 30%, which would be the lowest since the mid-1980’s. The Cocoa Association of Nigeria forecast their nation’s 2023/24 cocoa production to increase 3.5% from this season, but they also warned that black pod disease would continue.

COFFEE

December coffee was higher overnight on follow-through buying from Friday’s recovery off a seven-month low. An improved risk attitude with China’s announced rate cut and higher global equity markets overnight are lending support. There were reports of significant number of export deals in Brazil being closed in July that are currently being shipped, and this may have been what was pressuring the market until late last week. 2023/24 is expected to be Brazil’s largest off-year arabica crop on record, but it is expected to exceed the second largest one (2019/20) by only 2.7 million bags and be roughly 5 million bags below the 2018/19 and 2020/21 crops. Colombia has seen little benefit from the end of La Nina. Their 12-month running production totals have seen incremental improvements in June and July, but nothing too impressive. The last four monthly readings have come in below an 11 million-bag annualized pace, and they are the lowest 12-month running totals since the end of 2013.

COTTON

The cotton market is torn between threats to the US crop and concerns about Chinese demand. An improved risk tone this morning after China lowered its short-term rates over the weekend is lending support to December cotton. Last week’s US Crop Progress report showed the percentage of the crops rated poor/very poor were at record highs for Texas and the US, and they could be even worse this week, as high temperatures limited the benefit of any rain that did fall. There are chances for rain this week in Texas but again, temperatures continue to be well above normal, which will speed evaporation. There is a chance for rain in the Delta this coming weekend that could help with filling the crop. China imported 110,000 tonnes of cotton in July, up from 80,000 in June but down 6.7% from a year ago. India’s monsoon rainfall through Sunday was 7% below the long-period average, which would put 2023 in the “below normal” category. There have also been reports that pink bollworm has hit a few villages in the Punjab.

 

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