Cotton Extends Selloff Overnight

COTTON

December cotton extended its selloff overnight and traded to its lowest level in almost a year. The market continues to see heavy selling as it comes to terms with the idea that a small US crop is not enough to hold up prices in the face of more ample global supplies and worries about demand. US cotton export sales have reached only 57% of the USDA forecast for the marketing year versus a five-year average of 65% for this point in the season, and this has traders wary of a possible reduction in the USDA’s export forecast. Traders are worried about the US losing market share to Brazil and Australia. However, US sales to China are currently ahead of a year ago and on par with the five-year average. The trade seems to be more fearful of a bearish surprise in tomorrow’s monthly USDA supply/demand report than a bullish surprise.

COCOA

The cocoa market is in the fifteenth month of a long-term uptrend, which has been supported by resilient demand and expectations that El Nino would have a negative impact on many of the world’s top cocoa-producers. With prices sitting at 45-year highs, the market is susceptible to near-term bearish developments. December cocoa traded to new highs yesterday but gave up those gains and finished with a negative daily reversal. Ivory Coast port arrivals this week came in above year ago levels, which was a change in the trend from recent weeks. Total arrivals are still well behind a year ago, but the increase this week suggests that that main crop may not be as bad as previously thought. On the other hand, West Africa’s dry season will begin in several weeks, and farmers are concerned that the Harmattan winds will start earlier than normal, especially with the presence of El Nino.

SUGAR

The sugar market has been drawing support from Brazil’s port congestion as well as south Asian production issues, but the market is also showing signs of being top-heavy. March sugar’s failure to close above 28.00 after trading above it for two straight days was a disappointment for the bulls. With the Unica update on Brazilian production due out later this week, traders have become hesitant to push the market higher. March sugar traded to a new 12-year high on Tuesday but then reversed and closed lower on the day, and it extended those losses overnight. A steep selloff in crude oil may have contributed to the negative psychology.

COFFEE

December coffee reached a 4 1/2-month high on Monday, and it has been consolidating those gains since. Reports of port congestion in Brazil and an unusual decline in ICE exchange stocks for this time of year have encouraged ideas that near term supplies are very tight. However, a Bloomberg story overnight suggested that this decline may have more to do with an upcoming rule change at the exchange, which will prevent owners from resubmitting old coffee for inspection, than has with tight global supplies. Recall also that Brazil’s coffee exports in October were above year-ago levels. Expectations that Brazil will have larger production during the upcoming 2024/25 season have weighed on prices, as that will help offset current supply issues in Colombia and Central America. There are also reports that rains are delaying the robusta harvest in Vietnam.

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