Sugar Focuses on India Monsoon

SUGAR

Sugar’s near-term direction may hinge on whether India’s monsoon manages to finally establish itself in the next few days. The India Meteorological Department (IMD) says the monsoon should gain momentum in the next three to four days and could cover key sugar cane and cotton regions in the southern, central, and western states. The monsoon usually covers 50% of the country by mid-June, but so far only about one-third has been covered. India has received about 33% lower than normal rainfall, though in some areas the deficit is as much as 95%. The IMD is forecasting below-average rainfall for June, but with the monsoon expected to pick up in July, August, and September, they expect average rainfall expected over the four months. However, traders are also concerned that a strong El Nino could bring very dry conditions. Thailand’s 2023/24 cane harvest will not reach full speed until December, and they are also expected to see drier than normal conditions from El Nino that would negatively impact their crop.

COTTON

The 1-5 day forecast now has up to 2 inches of rain for parts of West Texas and the Panhandle, which is a significant increase from late last week. The forecast for the next seven days calls for above normal temperatures and close to normal rainfall and a slight to moderate loss of soil moisture. As of June 13, 18% of the US cotton growing area was under drought, down from 28% two weeks prior and 52% a year ago. Traders may also be counting on an increase in moisture this summer from El Nino, but NOAA cautions that the correlation between El Nino and rain in the southern US is not very strong during the summer. Global Times, an English language newspaper published under the auspices of the Chinese Communist Party, reported that cotton trade between China and Brazil is likely to be settled in yuan in the “near future.” Brazil hopes to overtake the US in exports to China. In the first four months of the year, China reported importing 382,000 tonnes of cotton, with 52.2% of that coming from the US and 31.5% from Brazil India’s delayed monsoon is expected to establish itself in the next 3-4 days, which would allow cotton growers to start planting.

COCOA

With a negative shift in global risk sentiment following Friday’s close, cocoa is vulnerable to a wave of profit-taking and additional long liquidation. The prospect of higher Euro zone interest rates by the end of the year may dampen European chocolate demand, and that became a source of pressure on cocoa going into the weekend. This offset strong gains this month for the British Pound and Euro that would help European grinders acquire cocoa. Recent heavy rainfall over many West African growing areas has disrupted to the flow of beans to the region’s major port facilities and has raised concerns about crop health. The 10-day outlook calls for cool temperatures with moderate to high rainfall, which could cause further delays in the harvest, drying, and transport of beans. Ivory Coast arrivals reached 2.166 million tonnes by June 18 (for the season that began October 1), down 4.4% from the same period last year. A group of major Ivory Coast cocoa processors said that their May grindings were 9% above last year’s total, and that has kept their 2022/23 total at 12% ahead of last season’s pace. Increasing amounts of “origin” grindings have reduced the amount of beans available for export.

COFFEE

The coffee market saw choppy action last week as very tight supply in Vietnam and Indonesia was balanced against increasing Brazilian Arabica production. NY (Arabica) coffee was weaker overnight despite steady to firm robusta prices off Brazilian harvest pressure and a negative risk tone. September coffee fell 5.90 cents last week, for the third negative week in the past four. Brazil’s Arabica harvest has picked up speed in recent weeks, which will bring more of their new-crop supply to global export markets. Vietnam and Indonesia have seen their coffee supplies drawn down to very tight levels, and robusta prices reached record highs this month. Both nations are expected to see drier than normal conditions due to El Nino that could reduce upcoming crops. The premium of Arabica prices to robusta prices reached a three-year low this month, and that may boost the outlook for Arabica demand during the third quarter.

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