Ivory Coast Suspends Cocoa Bean Sales

COCOA

Disappointing European grind numbers sent cocoa prices sharply lower yesterday, but the market still faces tight supply and a possibility of a third global production deficit in a row this coming year. Second quarter European grindings came in lower than expected yesterday and were 5.7% below the same period last year. This was the lowest second-quarter total since 2020, and it was the lowest European grind for any quarter in the past three years. There were reports of heavy selling by Cargill after they had been building a large position. Europe has traditionally been the region with the largest share of global grindings, and their quarterly results are viewed as an important gauge of global demand. However, the rise of origin grindings (in nations where the cocoa is grown) in recent years has lowered the importance of the European and North American reports. The market is awaiting Asia and North American grind reports next week. Barry Callebaut, which makes about 25% of the world’s chocolate, said sales in the nine months ending in May fell 2.7% from year ago levels. In contrast to all the bearish demand news, Ivory Coast has stopped the forward selling of cocoa beans for the 2023/24 season out of concern that producers will not have enough supply to cover forward sales. Torrential rains caused heavy flooding in May, and continuing periods of rain since have offer little chance to dry out. There have been reports of a loss of flowers, which would affect the upcoming main crop, as well as black pod disease. A Rabobank analyst said he expects global cocoa production to fall short of consumption for the third year in a row in 2023/24 due to black pod disease and the strong chance that El Nino would hurt the main crop.

COFFEE

Coffee prices have been pressured by an active Brazilian harvest that has benefited from dry conditions, but an improving demand outlook may help the market finish the week on an upbeat note. Ideas that the long-term decline of global inflation will boost out of home coffee consumption were strengthened by this week’s US CPI and PPI numbers which both came in lower than expected. ICE exchange coffee stocks fell by 320 bags yesterday and were close to Tuesday’s 2023 low. There has been a significant drawdown in European supplies since January, which indicates an improvement in that region’s demand. The Brazilian currency extended its recovery move with a moderate gain on Thursday, and that provided additional support to the coffee market on ideas it will ease pressure on farmers to market their remaining supplies.

COTTON

The hot and dry weather in West Texas could cause a reduction in crop conditions in Monday’s report, but improved soil conditions to date allow for some moisture loss, and demand is less than stellar. This dichotomy could keep cotton trading within its five-month range. The weekly US Drought Monitor showed approximately 15% of the US cotton production was in an area experiencing drought as of July 11, down from 18% the previous week and the lowest since October 2021. The report also pointed out that highly variable conditions over the last week, with heavy to excessive rainfall in the Texas and Oklahoma Panhandles but most of interior and western Texas seeing little if any rainfall, prompting expansion and intensification of dryness and drought there. There could be some deterioration in the Texas crop, but the increased chance of rainfall next week could limit the damage. US cotton export sales for the week ending July 6 came in at 23,066 bales for the 2022/23 (current) marketing year and 51,004 for 2023/24 for a total of 74,070. This was down from 239,608 the previous week and the lowest since March 2. Cumulative sales for 2022/23 have reached 13.911 million bales, down from 15.651 million a year ago and the lowest for this point in the marketing year since 2015. Cumulative sales for 2023/24 have reached 2.309 million bales, down from 4.588 million a year ago and the lowest since 2015 as well. China was the largest buyer this week at 34,189 bales, followed by Bangladesh at 20,404.

SUGAR

The sugar market is benefiting from a sustained rally in energy, but there are also some concerns about hot and dry weather affecting European beet production and the prospects that El Nino will cause problems with next year’s crop. Crude oil and gasoline have seen significant rallies over the past couple of weeks and are approaching their 2023 highs, and this action supports ideas that crushers in Brazil and India could devote more of their output to ethanol as opposed to sugar. But with sugar prices having reached their highest levels in over a decade earlier this year, it may take further gains in energy prices to get processors to change their mix. In their latest supply report, Unica noted that sugar’s share of crushing in Brazil during the second half of June was 49.5% versus 45.5% for the same period last year. This kept their sugar output at 7.6% ahead of last year, but the report also showed sugar yields were lower than last year. The rally in the Brazilian currency eases pressure on processors to market their product. There was heavy monsoon rainfall last week over portion of northern India, including the western section of Uttar Pradesh, their second largest sugar producing state. This should help cane farmers in that area with planting cane for their 2024/25 crop and improve the outlook for next season. However, the NWS has given a more than 90% chance for El Nino conditions to continue through the Northern Hemisphere winter, with a peak expected at moderate to strong intensity. This could raise concerns about India’s crop going forward.

Interested in more futures markets?  Explore our Market Dashboards here.