Cocoa Extends Rally Overnight

COCOA

December cocoa extended its rally overnight, as it seemed to draw support from the third-quarter grindings data from Asia, which came in at 211,468 tonnes and were down 8.5% from the same period last year. The decline was slightly smaller than Europe’s, which fell 9% year over year in the third quarter, and it seemed to indicate that high prices had not hurt demand as much as feared. Asia has been the engine for global cocoa demand growth in recent years. Their second quarter grindings were 6.5% below last year. North America has been the weakest of major processing regions in recent years, and it showed large year-over-year declines in the first and second quarters, so the market would probably not be surprised if there was another decline in the third quarter. Traders are expecting Nigeria’s harvest to pick up later this year as conditions dry out. The current low harvest is due to excessive rain. Peak harvest usually occurs in November and December, but the unseasonal weather could shift it to December and January.

COFFEE

December coffee has closed higher for six of the past seven sessions and was higher again overnight. ICE exchange coffee stocks fell another 250 bags on Wednesday to reach a new 11-month low. Recent rainfall over Brazil’s major Arabica growing regions has been viewed as beneficial for their upcoming 2024/25 crop, but Colombian production has been slow to recover from La Nina-induced declines last year, and leading Central American producer Honduras is expected to be see a 6.6% decline in exports in 2023/24. Recent consumer inflation rates from the US, Euro zone and UK have increased slightly, but their year-over-year rates are still well below year-ago levels, and this is viewed as positive for out-of-home coffee consumption. Recent strength in the Brazilian real has reduced pressure on Brazilian farmers to market their product to foreign customers.

SUGAR

March sugar backed off yesterday’s one-month high on disappointing data from China that showed their sugar imports in September were 30% below year-ago levels. China is typically one of the world’s top-two sugar importers. Brazil’s Center-South cane-growing regions have rain in the forecast early next week, which may cause delays to harvest and cane crushing. Rain has also interrupted exports, with reports yesterday that ships were having to wait as much as 27 days to load versus their usual 10 days. Heavy rains force ship captains to close their holds. Reuters reports the dealers expect the delays to push shipments that were scheduled in October and November into December and January. There are reports that India will extend its sugar export ban past the end of this month, but this is not a surprise given the tight supply/demand balance expected this year, with expectations of the embargo lasting into the second quarter of 2024.

COTTON

December cotton reversed and closed higher on Wednesday after falling to its lowest level since July 19 earlier in the session, but it was lower overnight. The market had been under pressure for several weeks despite the lower production from the US this year, as the world supply does not look historically tight. Demand from China has been muted, and traders are concerned about the economic situation there. Weekly US export sales are off to their slowest start since the 2016/17 marketing year. Traders will be looking to today’s report to see if there is any improvement from last week. Harvest pressure may ease a bit with the rain coming into Texas this week, which could provide near term support to cotton, and there is also the possibility that US production numbers will worsen as the crop comes in.

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