Bullish S&D Outlook for Cocoa

COCOA

Cocoa prices are on course for an eighth positive monthly result in a row but have only had one positive daily result during the past five sessions. While this leaves the market vulnerable to profit-taking, cocoa continues to have a bullish supply/demand outlook going forward. For the week, July cocoa finished with a loss of 77 points (down 2.5%) which broke a 2-week winning streak and was a negative weekly key reversal. Negative vibes on US debt limit talks put early pressure on the cocoa market, and that would have negatively impacted near-term demand in North America. Over the weekend, however, a US debt limit deal was announced which should help to soothe demand concerns as well as strengthen risk appetites. An extended period of wet weather over West African growing areas pressured cocoa prices as that should benefit the region’s late-harvested midcrop output.

COFFEE

Coffee prices went into the holiday weekend on a downbeat note as the market was pressured by bearish supply news. July coffee fell to a 6 1/2 week low and for the week, July coffee finished with a loss of 10.40 cents (down 5.2%) which was a second negative weekly result over the past 3 weeks. Safras & Mercado said that Brazil’s current Arabica harvest is running behind last year’s and the 5-year average pace. However, updated forecasts for dry weather over their major growing regions should help Brazil’s Arabica harvest to speed up over the next few weeks, and that weighed on coffee prices. The Brazilian trade group Cecafe said that their nation’s 2023/24 coffee crop should surprise positively, and that Brazil’s coffee exports should recover during the second half of this year.

COTTON

July cotton reversed and closed sharply higher on Friday, taking back most of Wednesday’s and Thursday’s losses. Reports of good progress on a debt ceiling deal supported many commodity markets, including cotton. News over the weekend that a deal had been reached could also provide a lift to the market in the early going. Last week’s drought monitor showed significant improvement in drought conditions in some of the hardest-hit areas of Oklahoma and Texas, as rain benefited rangeland, pastures, and summer crops. Still, even with abundant showers and thunderstorms, pockets of extreme to exceptional drought (D3 to D4) persisted in western and central Texas and across the northwestern half of Oklahoma.

SUGAR

Sugar’s abrupt turnaround on Friday was able to break a 3-day losing streak, but that recovery may have been due in part to carryover support from key outside markets. With recent bearish supply news, sugar prices may fall back on the defensive. For the week, July sugar finished with a loss of 41 ticks (down 1.6%) which was a fourth negative weekly result in a row. A rebound in crude oil provided sugar with carryover support as that should strengthen near-term ethanol demand in Brazil and India. In addition, a nearly 1% rebound in the Brazilian currency supported sugar prices as it eases pressure on Brazil’s mills to produce sugar for export. The India Meteorological Department (IMD) kept their 2023 monsoon forecast unchanged from earlier this year as they expect India will receive 96% of long-period average rainfall. This would be the low end of their “normal” rainfall category which ranges from 96% to 104% of the long-period average.

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