Cocoa Market Eyes Dry Season

COCOA

March Cocoa has traded in a sideways pattern this week after a breakout rally on Friday after that followed move above the 9-day moving average for the first time in several weeks. Ivory Coast port arrivals have been running ahead of average for the past few weeks, and this has allowed the cumulative number for the marketing year to approach (but not yet surpass) year ago and five-year average levels. West Africa’s dry season is approaching, and the production pace is expected to slow down as a result. The severity of the dry season, particularly the Harmattan wind which comes down from the Sahara, will determine how strong production is for the remainder of the main crop season. The Ivory Coast cocoa regulator, the Coffee and  Cocoa Council, has restricted the issuance of transport permits for cocoa beans to the ports of Abidjan and San Pedro to alleviate congestion and ensure farmers receive the guaranteed farmgate price, its managing director said. This underscores the strong arrivals pace but also points to limits on how much can move at a given time. West Africa continues to see a mix of rain and sunshine that is considered beneficial to the crop. Conditions should be turning drier as the season advances. ICE stocks fell 7,362 bags on Wednesday to 1.686 million, the lowest since March 14.

COFFEE

March Coffee has been in a sideways pattern all week as it weighs tight current supplies, expectations for an influx of Brazilian coffee into the US now that the tariffs have been lifted, and uncertainty over Vietnam’s robusta crop. Reuters reports that rains in Vietnam’s Central Highlands, the world’s top robusta bean producer, continued to disrupt the coffee picking and drying process. A coffee trader there estimated that farmers have harvested 50%-60% of their crops, but that the rain is preventing farmers from drying them. Another trader said the rainfall may affect the quality as well. Others said storms had delayed the harvest and led to cherries falling from trees. Some maintained that the harvest outlook remained favorable although others saw the storms reducing production by around 5% to 10%. World Weather, Inc. reported that the remnants of Tropical Depression Koto had brought enhanced rain in the Central Highlands this week and another tropical disturbance may affect the region during the middle to late part of next week.  In the meantime, Brazil rainfall has been sufficient to support coffee development this season but that there has been a tendency for rain amounts to trend light at times. They expect the coming week to ten days to bring greater rain intensity and more coverage, which  will improve subsoil moisture and support long term crop development during periods of lighter rain.  ICE certified arabica stocks increased another 4,570 bags on Wednesday to 413,474, their highest since November 10. Recent heat talk from the Colombian President towards the US administration could raise concerns about supply from the US’ second largest coffee supplier, but given recent history, we would not expect President Trump to revisit steep tariffs on Colombian coffee.

SUGAR

The rally off the November low in March Sugar was interrupted when the market failed to push through the 50-day moving average last week, and that line, currently around 15.21 could be a key resistance level in the next few sessions. The recent Commitments of Traders Report showed managed money traders were net short 153,192 contracts as of October 21, their second-largest net short since November 2019, which leaves the market vulnerable to aggressive short covering if resistance levels are taken out. Recent UNICA reports have indicated that Brazilian cane crushers have stepped up their ethanol production, which could limit their sugar output and help reduce burdensome global supply and add support to ideas that the market put in a major low last month. Sugar’s share of the crush fell to 38.2% in the first half November after falling below 50% in October for the first time since April. Earlier this week India’s production was reported to be running was 43% higher than year-ago levels during October and November, the first two months of the marketing year. This was not a surprise after the good monsoon rainfall earlier this year. The Indian government has agreed to allow 1.5 million metric tons of exports this season, up from 1.0 last year, but processors are pushing an even higher number. However, low international prices relative to domestic prices are preventing exporters from making any deals. World Weather Inc. says expects center west and northern parts of center south Brazil to receive significant rainfall through next week, which they should be sufficient and well timed enough improve crop and field conditions. They added that frequent follow up precipitation will be needed to restore soil moisture down deep into the ground.

COTTON

March Cotton has been in a sideways pattern all week but is managing to hold above the 9-day moving average. Another exports sales report will be released today (December 4) at 7:30 AM Central, and this one will cover the week ending October 30. Monday’s report showed the US sold 167,742 bales of cotton for the week ending October 23, down from 202,518 the previous week. The USDA is playing catchup after falling behind during the shutdown, with reports coming roughly twice a week. The five weekly sales numbers that have been released since the shutdown ended (September 25-October 23) have ranged between 157,000 and 203,000 bales, not barn-busters but not bad either. Shipments have been decent as well, with Monday’s report at marketing year high of 174,448 bales. China emerged as the number one buyer at 35,319 bales, but 22,046 were for next year’s crop. Cumulative sales for 2025/26 are still running at their slowest pace in 11 years, but there has been some improvement in the recent updates. The next USDA WASDE update will be released on Tuesday, December 9. World Weather Inc. says favorable harvest weather is likely in California, the US southwest, and West Texas. The southeastern states may be disrupted periodically by rain, but this also brings the possibility of relief from drought. Australia’s cotton crop would benefit from rain in western dryland production areas where recent hot and dry conditions may have slowed development. Eastern crop areas are suspected of being in mostly good shape. The large net short held by the funds leaves the market vulnerable to short covering. The lower dollar this week improves US export prospects, but that will not be reflected in today’s report.

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