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Abrupt Change in Sept Coffee


The large net long in cocoa held by the funds leaves the market vulnerable to long liquidation if support levels are taken out. Concerns that heavy rainfall over West African growing areas will lead to the spread of black pod and swollen shoot diseases has underpinned cocoa prices recently, but decent rainfall will be necessary for the development of the main crop, and there are concerns the El Nino will bring drier than normal conditions. Above average temperatures have been observed across west Africa during the past week, with moderate to high precipitation in southern Ghana and southwest Nigeria and dry conditions in western Cameroon and Ivory Coast.

coffee beans in cup


September coffee had an abrupt change in fortune on Monday to close higher on the month after falling to a 6 1/2 month low on July 18. ICE exchange coffee stocks were unchanged on Monday, but they finished July at 528,752 bags, the third lowest month-end total since May 1999 and the sixth monthly decline in a row. This could be a sign of improved demand. Brazilian farmers have been reluctant to sell their newly harvested Arabica supplies at the current low prices, and this seems to have helped the market find a bottom. This position has been bolstered by the rally in the Brazilian currency, which eases pressure on producers to market their coffee to foreign customers.


The weekly Crop Progress report showed significant declines in US cotton crop conditions last week, in some cases worse than they were a year ago. The report showed 41% of the US cotton crop was rated good/excellent as of July 30, down from 46% the previous week, up from 38% a year ago and below the 10-year average of 51%. In Texas, 17% was rated G/E, down from 24% the previous week, 24% a year ago, and below the 10-year average of 39%. Mississippi, Missouri, and Alabama saw declines of 3%-5% last week. Also in the report, 31% of the US crop was rated poor/very poor, up from 24% the previous week, 28% a year ago and compared to a 10-yer average of 17%. Texas had 50% of its crops rated P/VP, up from 40% the previous week, 37% a year ago and a 10-year average of 24%. The forecasts call for hot weather to continue in Texas and the southern Delta, with temperatures expected to be 4-8 degrees above normal over the next seven days.


Key outside markets continue to work in sugar’s favor, but the market may need more bullish supply developments to extend its recovery move. Nearby crude oil traded to its highest level since April yesterday, and nearby gasoline was holding near its highest level since October. This is supportive to sugar prices on ideas it will improve ethanol demand and cause cane mills to divert more of their

processing to ethanol and away from sugar. The new Chinese stimulus measures announced over the weekend were also supportive, as they raised hopes that China would increase their sugar imports.

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