Rain Worries in Ivory Coast & Ghana

COCOA

May cocoa continues to make new contract highs, as the market worries that heavy rainfall in West Africa will make the tight supply situation even worse. Moderate to high precipitation has been observed across Ivory Coast, Ghana, Nigeria, and Cameroon this past week. This may have has helped cocoa development in Nigeria and Cameroon, but it also raises the potential for floods in southern/western regions of key producers Ivory Coast and Ghana, which could cause further delays to the harvest, drying, transportation of beans to port. Cool temperatures and moderate to high rainfall are expected over the next 10 days as well. There is also concern that the recent rainfall may have knocked flowers off trees, which would affect the 2023/24 main crop. The latest weekly Ivory Coast port arrivals reading came in slightly above the same period last year, but the 2022/23 total is still well behind a year ago.

COFFEE

After falling 29 cents from the early June high, September coffee had a modest reversal yesterday that suggested a near term low may be in place. News that Colombia’s Arabica output in May was only 806,000 bags, down 21% from May 2022, sparked the bounce. Colombia is the world’s second-biggest grower of Arabica coffee. The market has been under pressure from a strong harvest in the world’s largest producer (Brazil), so the Colombia news was welcomed by the bulls. There are reports that Brazilian firms are replacing some of their Robusta content with Arabica in their 2023/24 domestic coffee blends due to the currently high costs for Robusta. This could reduce the amount of Brazilian Arabica coffee that will enter the global export market. Lukewarm global risk sentiment and stubbornly high inflation has weakened the near-term outlook for restaurant and retail shop coffee consumption, and that was pressuring the market early yesterday.

COTTON

Crop conditions improved last week, even in Texas, and this would seem to give cotton a green light to test the November lows at 74.25. However, the market held yesterday’s low overnight, and technical indicators show a short-term oversold condition. A slight improvement in risk attitudes today could also lend some light support. The weekly Crop Progress report showed 49% of the US cotton crop was rated good/excellent last week, up from 47% the previous week, 37% a year ago, and right on the 10-year average. Texas also improved, coming in at 32% G/E versus 30% last week, 17% a year ago and a 10-year average of 35%. The 1-5-day forecast has light rains of less than 0.5 inch in west Texas, and that may be enough to avoid any significant deterioration. The 6-10-day forecast has near-normal temperatures and above normal rainfall, which could allow the crops to improve. Traders are watching the crop situation in India, where pink bollworm has emerged as a possible threat to the crop this year. Bloomberg reports that China is planning to release cotton from state stockpiles to boost supplies, which could pressure prices, as China has been the US’ biggest customer so far this year.

SUGAR

Good harvest weather in Brazil and news that the Indian monsoon had finally arrived in force were enough to send the sugar market below its May-June consolidation yesterday, but the market will have to contend with a supply update from Brazil later this morning that could show a drop in production from late May, when the Brazilian trade group Unica releases its bimonthly update. Rainfall during the first half of June caused several days of lost production. Analysts are looking for June 1-15 output to come around 2.54 million tonnes, which would be down from almost 3 million in the last half of May. However, weather during the second half of June has been nearly ideal, with the possibility that there were no days lost to rain, and the dry weather is expected to continue into next week. This may encourage the market to quickly discount any drop in production in the Unica report.

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