Bias in Coffee Remains Up

COFFEE 

As in other markets we suspect trading volume will return with the passage of the holidays with the overall bias in coffee remaining up off the concept that supply will struggle to meet demand again for the 4^th straight year. For now, the market appears range bound waiting for the outcome of weather in key growing regions. Over the past few weeks, there has been a shift towards wetter conditions over Brazil’s south Minas Gerais (their major Arabica growing region). While there is concern that Brazilian coffee trees received longer-term damage from last year’s drought, the production outlook can improve before the 2025/26 harvest reaches full speed in mid-May. In addition, the La Nina weather event should bring wetter than normal conditions to Colombia and Central America, which are key Arabica growing areas. Colombia has already seen increased output over the past year, and improved Central American production can also help to offset the shortfall in Brazilian production.

COCOA

At the end of last week, March cocoa managed to hold support at even number pricing of $11,000 and that level becomes key support early in the new trading week. Fortunately for the bull camp, Friday’s high was taken out early today as the market could have faulted in the face of stronger-than-expected Ivory Coast arrivals. While Ivory Coast full-season total arrivals remained 27% ahead of last season’s pace in this week’s report, sizable weekly arrivals totals are unlikely to continue last past the end of this month. Ivory Coast arrivals 2024/2025 were 1.109 mt as of January 5^th versus only 873,000 mt last year. From the weather front, Ghana and Ivory Coast growing areas are expected to have dry conditions with daily high temperatures in the mid to high 90s Fahrenheit through the middle of next week. While heat and dry wind will cause stress to cocoa trees, which have a negative impact on the region’s mid-crop cocoa production. Offsetting some of the bullish weather in Africa is the presence of scattered showers in Indonesia and Malaysia, with showers in Bahia Brazil also expected to benefit production. With trading volume falling consistently from last week’s holiday trade it was not surprising to see cocoa track sideways on the charts. Now however, normal trading is likely to expose the real trend which looks to reignite on the upside.

COTTON

After making a five-day high early last week, cotton finished the week and year under pressure with the Friday close an eight-day low. While Cotton posted a fourth negative weekly result over the past five weeks the March contract did hold above extremely important support down at 67.48. So far this morning, cotton has a tight inside-day range, and price action this week should be given more credence than action over the past two weeks. Looking back, the sharp weekly decline in export sales last week has left cotton prices on the defensive. The Export Sales Report for the week ending December 26th showed net cotton sales came in at 128,866 bales for the current marketing year and 5,280 for the next marketing year for a total of 134,146. Sales need to average 155,000 bales per week to reach the USDA forecast. While outside market forces like a weaker dollar and initial positive action in equities helps support cotton this morning the bear camp retains an edge from the October through present downtrend and from bigger picture supply and demand analysis. While the dollar has posted very poor action this morning and could give off minimal topping signals, the dollar index’s big picture fundamentals continue to favor the bull camp. In fact, the Dollar remains close to the 25-month high reached last Thursday, and that will continue to pressure on cotton as US cotton will remain at a disadvantage to Brazil in the global export marketplace.

SUGAR

Not surprisingly, sugar followed other markets in a sideways chop pattern ahead of and through the holidays. In fact, this morning March sugar sits just above the midpoint of a four week sideways consolidation bound roughly by 19.00 and 19.99. However, open interest has notably started to build since early December as if the trade sees prices under 20.00 as fundamental value. Furthermore, sugar was able to complete a positive weekly reversal from Tuesday’s 3 1/2-month low. Contributing to the thickness of consolidation resistance is the fact that the Brazilian currency lost strength on Friday after rallying from an all-time low on Thursday, which should leave carryover pressure on sugar prices as that will in turn give Brazil’s Center-South sugar mills more incentive to produce sugar for export. Lastly, a 16% decline in India’s fourth quarter sugar production from last year has reduced the chances that India’s government will allow sugar exports to resume later this year, and that has underpinned sugar prices above Tuesday’s low.

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