ADMIS News
COCOA
Asian grindings fell sharply in the second quarter, and this undercuts some of the recent bullish moves in the cocoa market. Asian second quarter grindings fell 6.52% from the same period last year to 213,977 tonnes, down from 228,895 a year ago, according to the Cocoa Association of Asia. Asia has been considered the “engine” for cocoa demand growth, and the lower grindings suggests the market may not be as tight as previously thought. The lower number was not unexpected, however, given the high cocoa prices and China’s sluggish emergence from Covid lockdowns. North American grindings are due out later today, and that number is expected to be down 3-5% from last year. September cocoa traded to new contract highs yesterday, and it was the highest in 12 years for a nearby contract. Ivory Coast’s cocoa bean exports from October through June, the first nine months of the 2022/23 season, were 11.6% below the same period last year. El Nino is expected to negatively impact 2023/24 production in West Africa and southeast Asia. The ICCO issued a report yesterday saying that disease brought on by the heavy rains in Ivory Coast could reduce production during the latter part of the 2022/23 mid-crop and further extend the detrimental effect to the main crop of 2023/24.
COFFEE
Brazil’s Arabica coffee harvest remains ahead of last year, and this is weighing on prices. However, the market has traded in an increasingly narrow range since its selloff in June, which suggests it could be approaching a bottom. Brazil’s largest co-op Cooxupe reported that its farmers had completed 50.5% of their harvest by last Friday up from 42.8% for the same period last year. This is their fastest harvest pace since 2020. The weather has been good for harvest over the last month after heavy rains in the first half of June caused delays. Uncertainty over the upcoming robusta crop in southeast Asia due to the onset of El Nino could support Arabica (NY) prices as well. Recent strength in the Brazilian currency may have also helped coffee avoid a downside breakout, as is has eased pressure on Brazilian farmers to market their coffee to foreign customers.
COTTON
Renewed concerns about production in the US and China could lift December cotton back its March highs. China announced this week that it was releasing cotton from its strategic reserves later this month. This news could be bullish if it means China will buy more in the future to replenish. China has been the biggest buyer of US cotton for the marketing year so far at 3.846 million bales. They have also made the most commitments for 2023/24 at 1.131 million. Traders will be looking to the weekly US export sales report today to see if there is any improvement over last week. Current and new crop cumulative sales are the lowest since 2015. The US is also experiencing some hot and dry weather, and this has started to affect the crop, particularly in Texas. As of Sunday, 45% of the Texas crop was rated poor/very poor, up from 40% a year ago, and that was when the state was experiencing an historic drought. The weather forecast for west Texas calls for above normal temperatures and below normal chances of rain for the next two weeks. Other major US cotton areas will be hot, but with closer to normal rainfall. A poor demand outlook has been a limiting factor for cotton prices, but that could be starting to change with the lower inflation data in the US and Europe, the growing sentiment that a recession will be avoided, and the rally in equities.
SUGAR
It appears that Brazil is moving towards passing legislation that would require a larger percentage of ethanol in the gasoline mix, which if enacted would encourage cane processors to divert more of their crushing operations to ethanol at the expense of sugar. Citigroup said that the Brazilian government’s proposal, which is to lift ethanol’s share of Brazilian gasoline from 27% to 30%, could reduce their nationwide sugar production by 3.5% by the 2024/25 season. This is particularly supportive for the deferred contracts for sugar, but it lends support to the nearby October as well. The sugar market was already drawing some support from the rally in RBOB (gasoline) futures this week. Strength in the Brazilian currency has also lent support on ideas it eases pressure on Brazilian mills to produce sugar for export.
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