Export Surge from Brazil Expected

COFFEE

Coffee’s Brazilian supply outlook continues to weigh on prices, and the market appears to be setting up for a downside breakout. However, the demand outlook is better now than it was in mid-January, when prices were last at these levels, and this suggests that the market may be closing in on a near-term low. The market sold off yesterday and traded just below the July 11 low to its lowest level since January 20. A pullback in the Brazilian currency weighed on prices on ideas it would encourage more aggressive marketing of coffee. Above-normal rainfall has been seen recently over Brazil’s major Arabica growing regions, and this is considered beneficial to the 2024/25 crop. The rains could also slow the current crop’s harvest, but so far this year it has been running well ahead of last season’s pace and could lead to a surge in Brazilian coffee exports in the third quarter.

COCOA

The cocoa market has been resilient in the face of demand concerns, as a bullish supply outlook continues to provide underlying support. However, traders could grow cautious ahead of the Asia and North America second-quarter grind reports that are due to be released later this week. Asia has been considered the engine for future demand growth, and this week’s number could be critical for market direction, at least in the near term. A disappointing set of Chinese economic data yesterday raised concerns about Asian grindings, and that may have fueled some profit-taking early in the session. The West African supply outlook remains bullish, and this continues to provide underlying support to the market. Cocoa arrivals at Ivory Coast ports for the week ending July 16 came in at 21,000 tonnes, up from 14,000 for the same period last year. There was above average rainfall over many West African growing areas last week, but with an extended period of sunny weather in the forecast, this is expected to benefit the upcoming cocoa production.

COTTON

The hot and dry weather finally appears to be affecting the cotton crop in Texas, and this could allow December cotton to approach the May highs. Yesterday’s Crop Progress report showed 45% of the US cotton crop was rated good/excellent as of July 16, down from 48% the last week and below the 10-year average of 51%. Texas was rated 26% good/excellent, down from 33% last week and below the 10-year average of 39%. This is up from 21% last year but not by as much as it has been in recent weeks. The report also showed 28% of the US crop was rated poor/very poor, up from 25% last week, 27% a year ago, and above the 10-year average of 17%. In Texas, 45% was rated poor to very poor, up from 40% last week, 40% a year ago and a 10-year average of 25%. The fact that the poor/very poor ratings are higher than last year (especially Texas) is notable. Up until this week, the Texas crop has appeared resilient to the hot and dry weather, with the vast improvement in soil moisture conditions after last year’s historic drought, but some of that resilience could be slipping. China’s agriculture ministry has urged cotton growers to irrigate and fertilize more to cope with scorching temperatures that have hit major growing areas, including Xinjiang, during the critical flowering period. The area has seen record temperatures of 126 degrees Fahrenheit this past month. On the demand front, China imported 80,000 tonnes of cotton in June, down from 110,000 in May and down 49% from a year ago.

SUGAR

The sugar market could remain on the defensive until there is a fresh bullish supply development. October sugar broke a four-day winning streak yesterday, as bearish supply news combined with carryover pressure from key outside markets brought an abrupt change in direction. Disappointing Chinese GDP data raised concerns about demand, as China is one of the world’s top two sugar importers. A pullback in the Brazilian currency and weaker energy prices also put pressure on sugar prices yesterday, as that combination encourages Brazil’s Center-South mills to keep sugar’s share of crushing as high as possible. The Archer consultancy said that Brazilian mills had hedged 17% of their 2024/25 exports as of June 30 versus 24% of their 2023/24 exports on the same date last year. Only about one-third of India has received average monsoon rainfall this year, despite the early coverage. Some northern and western states have received excessive rain, but southern and eastern regions have been dry. Growers in Maharashtra and Karnataka, two of India’s three top growing states, are worried that scant rainfall during the crop’s crucial growth period could harm yields and reduce sugar output. Traders may also be growing concerned that El Nino is starting to hit key growers in India and Thailand.

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