Cotton Likely to Chop

COTTON

We look for choppy action ahead of today’s USDA supply/demand report. Average trade expectations call for minor changes for the 2023/24 outlooks, and they range about equally from bearish to bullish. This suggests a capacity for the market to be surprised today. US cotton crop conditions are close to the 10-year average and have been mostly steady since the June supply/demand report, which would seem to leave little reason for the USDA to alter the yield forecast or abandonment rate. The June 30 Acreage Report lowered planted area by 173,000 acres, and if abandonment rates and yield are left unchanged from the June supply/demand report, it could put 2023/24 production around 16.24 million bales, down from 16.50 million in June. It appears that production and ending stocks could come in below average expectations, but not in a dramatic way. Looking beyond the report, extreme heat in the south and a hot and dry forecast for west Texas could start to raise concerns about the crop. The forecast for the next seven days has above normal temperatures and below normal precipitation in west Texas, with some moderate loss of soil moisture. December cotton closed higher on Tuesday on support from outside markets, including a weaker dollar, equity market strength, and higher crude oil prices.

COCOA

Cocoa continues to hold its ground near 7 1/2-year highs, but a lack of strong upside momentum and a technically overbought condition does make the market vulnerable to a pullback. September cocoa felt some pressure yesterday from a weaker than expected set of German and Euro zone economic sentiment surveys and an increase in German CPI, as this raises concern about European chocolate demand. The market did garner some support later in the session from strength in the Euro, which reached its highest level in two months, on ideas it will put European grinders in a better position to buy cocoa. Many West African growing areas have daily rainfall in the forecast through late next week. The totals are not especially heavy, but the continued occurrences will slow down the drying process for recently harvested beans and increase the spread of black pod disease.

COFFEE

Coffee’s coiling price action since late June could be setting the stage for a breakout from its recent consolidation. With larger Brazilian production continuing to be the dominant theme, the market may see further downside action this week. September coffee fell to a new 5 1/2 month low on Tuesday. Brazil’s Arabica harvest has made up for early-season delays after extended periods of mostly dry weather, with some key growing areas in Minas Gerais receiving a fraction of their normal rainfall last week. Vietnam’s coffee exports in June were 2.2% above last year. Their exports for the first half of 2023 are down 3.1% from a year ago. ICE exchange coffee stocks fell by 1,162 bags on Tuesday and were back below their June month-end total.

SUGAR

So far this week, sugar has traded inside of last Friday’s price range, and with the market avoiding a potentially bearish supply development, it may be able to lift clear of its recent consolidation zone. The Brazilian trade group Unica released their latest supply report yesterday, which pegged Center-South sugar production during the second half of June at 2.695 million tonnes. This was 7.6% above last year but below trade estimates calling for 2.85-2.90 million. Domestic ethanol sales during June were 7.8% above last year. This was the second month in a row that sales had come in above year ago levels. The Unica report also noted that the early harvest of cane crops that were not mature enough caused a decline in the amount of sucrose per tonne of cane. There were reports yesterday that much lower than average monsoon rainfall in the states of Maharashtra (their top sugar producing state) and Karnataka (the third largest) will negatively impact India’s 2023/24 cane crop.

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