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Tight Supply Issues Remain

COCOA

March cocoa was higher again overnight and traded to another new all-time high. It may have the traits of a market experiencing a blowout rally, but there is no indicator of a top, and a solution to the extremely tight supply could be a long time coming. The market has been dominated by the reports of a severe seasonal Harmattan wind that is drying out soils West Africa, poor mid-crop expectations for Ivory Coast and Ghana, and already tight supplies after poor main crop production this fall. The Chief Executive of Ghana’s cocoa industry regulator, COCOBOD, said this week that more than 500,000 hectares of cocoa farms in Ghana have been lost to Cocoa Swollen Shoot Viral Disease and that this was posing a major threat to the country’s production. Traders are wondering when demand destruction will start to rein in prices.

COFFEE

If consolidation means continuation, the coffee market could be on the verge of making a new leg higher. After a one-day break, ICE exchange warehouse stocks increased by 807 bags yesterday to 289,552, their highest level in 2 1/2 months. The Arabica market has been supported by extremely tight robusta supplies that resulted from a poor Vietnamese crop in 2023 and interruptions in shipping through the Red Sea that have slowed movement from Asia to Europe. Reports are that coffee buyers are “shunning” robusta bean purchases from Vietnam because shipping costs and delivery times have surged. Buyers are turning to Brazil for their robusta bean. Dry conditions in Brazil late last year and into this year have raised concerns about the upcoming Arabica and robusta crops, but the key growing region of Minas Gerais did receive some rain this week and is expected to see an extended period of rainfall starting next Thursday.

COTTON

The USDA monthly supply/demand report was supportive yesterday, with US 2023/24 ending stocks coming in at 2.80 million bales, below an average trade expectation of 2.86 million bales and down from 2.90 million in the January report. This was the lowest ending stocks number since 2016/17. The stocks/use ratio fell to 19.9% from 20.7% last month and was the lowest since 2020/21. Exports were revised to 12.30 million bales from 12.10 million in January, and domestic usage was lowered to 1.75 million from 1.90 million. Production was left unchanged. World ending stocks came in at 83.70 million bales, down from 84.37 million bales expected and 84.38 million in the January update but still higher than 82.97 million in 2022/23.

SUGAR

Brazil’s record production this year has helped offset lower output in India and Thailand, but dry conditions in center-south Brazil could hurt the upcoming crop. Recent rain in the region and more in the forecast may help ease some of those concerns, but there is still a balancing act between the tight global supply and strong Brazilian output. USDA reported yesterday that the US will be forced to import less sugar from its main supplier Mexico, as production there is expected to fall to 4.87 million short tons, down 350,000 from the previous year.

 

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