Cocoa Prices Rally on El Niño Fears

COCOA

As expected, the September cocoa contract has extended the uptrend again today with US cocoa prices reaching the highest level since a major gap down trade in January. The London cocoa market is also confirming the extension of the bull case with a five month high, and cocoa traders in London continue to price in significantly lower 26/27 West African main crop output. In other words, El Niño bullish fever continues to dominate the trade, and the September contract appears to be on track to regain $5500.

SUGAR

Not surprisingly the sugar market continues to languish with the recent bounce off the low likely fostered by technical short covering and not a bullish shift in fundamentals. However, seeing the October contract fill and trade above the top of the gap at 14.10 (left by Tuesday’s sharply lower opening) begins to signal a shift in technical signals from bearish to bullish. As opposed to coffee and cocoa, the sugar market is facing initial bearish pressure from the El Niño phenomenon which is expected to benefit Brazilian production from increased precipitation. In fact, the largest sugar producer in the world (Copersucar) expects a larger harvest but also indicated the weather phenomenon could negatively impact operations/crushing. Copersucar raised its 25/26 projected sales by 9% to 17 million metric tons, but part of that bearish news is offset by ongoing signs that Brazil will continue to favor ethanol production over sugar production.

COTTON

With a fresh downside extension and lowest trade in December cotton since June 11th the downward bias has been extended into another trading session. While the dollar has not forged a higher high this morning it remains at multiyear highs and appears to be headed even higher. The market also faces another major bearish outside market force given new lows for the move in crude oil this morning. Clearly, the cotton trade remains under fundamental pressure with the trade beginning to fear the US the annual acreage report next Tuesday will not reduce acreage as hoped for earlier this year. Average trade estimates peg US acreage at 9.63 million acres which in turn will put planted acreage slightly above the 25/26 crop.

COFFEE

Even though the coffee market does not appear to have attracted significant El Niño inspired speculative buying interest, we see the June uptrend pattern extending and the September contract targeting 300 in the coming weeks. In fact, trading volume has picked up over the prior two trading sessions and with open interest brought down aggressively in the first half of June, the market should have significant buying fuel. In fact, the last COT positioning report showed a very limited net spec and fund long of 3800 contracts compared to the record long of 79,584 contracts posted in 2024. While not a major bullish development Costa Rica indicated its coffee harvest declined by 12% from last year and reached its lowest level in 55 years. However, the trade has largely expected ongoing declines in Costa Rican production with production falling by 27% over the last 25 years. The Brazilian production situation also adds to the bull case with Brazil’s largest coffee co-op yesterday indicated there harvest is behind year ago levels by 4.2% from harvest delays from rainfall.

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