Brazil Sugar Ahead of Schedule

SUGAR

Sugar is on course for a second positive week in a row, as the likelihood that El Nino will negatively impact upcoming production in India and Thailand has given a boost to prices this week, but Brazil’s sugar output is running well ahead of last season, and that could limit upside action. India’s monsoon is running 5 to 10 days behind schedule, which means that it may not reach cane growing areas in the state of Uttar Pradesh until late this month, yet the India Meteorological Department is still projecting this season’s monsoon rainfall to reach 96% of their long-period average, which would keep it in the “normal” category. Brazil’s Center-South production has been well ahead of last season’s pace through the first two months of the 2023/24 season, and that offers a bearish counterpart to the threat of lower Asian output. Brazil’s Petrobras said that they will reduce their average wholesale gasoline prices from 2.79 to 2.66 real per liter starting today. This should keep mills focused on sugar production as opposed to ethanol. However, the stronger real makes local sugar prices cheaper and limits selling by mills.

COCOA

Cocoa prices have risen 243 points (up 8%) for the month of June, and nearby prices are approaching their May highs, which were the highest since December 2015. The market is receiving support from a bullish supply/demand outlook and tight near-term supplies, but it is also vulnerable to a pullback given how far it has rallied. Ivory Coast’s May cocoa grind totaled 57,745 tonnes, up 9% from 52,974 last year, according to the exporter association GEPEX. The Ivory Coast Agriculture Minister said that they are aiming to increase grinding capacity by more than 200,000 tonnes per season over the next few years. West Africa supplies remain tight more than two months into the midcrop harvest. Heavier than normal rainfall has led to flooding that has disrupted the flow of midcrop cocoa beans to Ivory Coast port facilities. More moderate to heavy rainfall is expected across Nigeria, Cameroon, Ghana, and Ivory Coast over the next 10 days, and this could adversely affect bean quality and interrupt arrivals.

COFFEE

NY (Arabica) coffee futures are occasionally drawing support from a soaring robusta market, but good harvest weather in Brazil has kept a lid on prices. The market is lower this week but could reverse if global risk sentiment continues to improve. The outlook for out-of-home coffee consumption has improved with the decline in inflation. Robusta coffee traded to another new contract high overnight. Tight supplies in Vietnam and lower production in Indonesia sent nearby prices to their highest levels since 1995. The arrival of El Nino is expected to bring hot and dry conditions to southern Asia, which would hurt next season’s robusta output. It can also bring heavy rainfall to South America, which could cause problems with their coffee crops as well. Ongoing strength for Brazil’s currency provides additional support to coffee prices, as that could ease pressure on growers to market their near-term supplies to foreign customers.

COTTON

December cotton appears to be headed back to the bottom of the range it has held for the past three months, but it may have difficulty falling below there, given the hot and dry forecast for west Texas and the Panhandle. This forecast offers a mixed bag for the region, though, as parts of the Panhandle receive excessive rain earlier in the season, which improved soil moisture but made planting difficult and caused problems for emerging crops. For those growers, the hot and dry forecast may be welcome. On the other hand, areas still under drought could see worsening conditions. As of June 11, 30% of the Texas crop was rated good/excellent versus 25% last year and a 10-year average of 36%. Only 72% of their crop was planted versus 89% last year and 88% on average. This “mixed bag” may be one reason why cotton has remained in a choppy, sideways pattern.

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