New Concerns Over West Africa Production

COCOA

December Cocoa broke out above a two-month trading range last week on new concerns over west African production. Ghana’s Cocobod last week lowered its target quantity for bean purchases to 650,000 metric tons from an earlier prediction of 810,000. Traders are blaming the lack of rain there this summer. Cocobod is looking at a new funding model for bean purchases that will require global traders to deposit at least 60% of the value of their forward contracts at the start of the season. This would replace the pre-export, syndicated loans that Cocobod had been taking out for the past 30 years. The ICCO will publish new forecasts at the end of this week, and due to the robust grinding figures for the second quarter, the supply deficit for 2023/24 could be slightly larger, according to Commerzbank. The Ivory Coast government said on Friday that it will increase its support for small local cocoa exporters to help them more than double their annual purchasing volumes and better compete with international players that are more financially secure. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 675 contracts of cocoa for the week ending August 20, increasing their net long to 26,284. This is near the low end of the historic range and leaves the market neither overbought nor oversold.

COFFEE

December NY coffee was slightly lower overnight following a three day setback in the wake of a move to new contract highs last week. London robusta traded to new all-time highs on Friday, but the market is closed today for a UK holiday. The robusta market has drawn support from tight old crop supplies and new found uncertainty regarding Vietnam’s upcoming crop. However, World Weather Service reports that satellite and surface weather observations suggested that most of Vietnam’s coffee areas received rain at one time or another over the weekend, mostly light to moderate. A daily occurrence of showers and thunderstorms are expected in coffee production areas during the next week to ten days. A cooling trend is expected in Brazil but not enough to threaten coffee growing areas with frost. Friday’s Commitments of Traders Report showed managed money traders were net buyers of 5,484 contracts of coffee for the week ending August 20, increasing their net long to 57,468. The is near the upper end of the historic range, which leaves the market vulnerable to long liquidation if support levels are taken out. ICE arabica stocks increased by 5,978 bags on Friday to 844,145, which is their highest in at least four months.

COTTON

December Cotton was higher overnight,  continuing its rally off the August 16 contract lows. Dry weather in west Texas has lowered expectations for the upcoming crop. Last week’s crop progress report showed US and Texas crop conditions had fallen to their lowest levels of the year and below the five-year average. The weekly US Drought Monitor showed 30% of the US crop was within an area experiencing drought as of August 20, up from 22% the previous week and 13% on August 6. The market has also found support from a weaker dollar. The nearby Dollar Index fell to its lowest level in over a year on Friday, which helps make US cotton more competitive on the global market. Higher crude oil prices make polyester more expensive to produce, and a speech by Fed Chair Jerome Powell seemed to confirm expectations that the Fed would soon begin to cut interest rates. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 2,391 contracts of cotton for the week ending August 20, increasing their net short to 51,845. The was a new record net short, and this has left the market vulnerable to short covering if resistance levels are taken out.

SUGAR

October Sugar gapped higher overnight and traded to its highest levels since August 1. The market has seen a strong rally off last week’s 16-month lows. News of fires hitting cane field in the main sugar producing region of Brazil has added to concerns that their drought this year will lead to lower production. A fire last week led to the closure of a large mill owned by Raizen. The dry conditions this year have increased the chance of fires, and according to Datagro, the number of fires are up 60% from a year ago. Burned cane can still be harvested and processed, but it depends on the crop’s stage of development. In places that have already been harvested, fires can delay plantings. Sharply higher crude oil prices are also supportive, as is a more positive tone to markets in general after Powell’s speech on Friday that further increased expectations for a rate cut. Friday’s Commitments of Traders Report showed managed money traders were net sellers of 18,328 contracts of sugar for the week ending August 20, increasing their net short to 27,014. This is well above the record net short and well below the record net long and could be described as “neutral.”

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